Several insurers and pension funds have been hit by the financial problems at Yes Bank.
LIC of India, Employees’ Provident Fund Organisation (EPFO) and India Postal Insurance are some of the largest long-term investors in Yes Bank bonds worth more than INR220bn ($3bn), which are known as Tier-II bonds, reported The Economic Times.
A rating downgrade to ‘D’ or default has raised concerns among the investors, who are now dependent on a revival in the bank’s fortunes for a rating upgrade.
LIC is estimated to have invested at least INR55.45bn. EPFO, the largest domestic institutional debt investor, is said to have invested about INR40bn. The National Pension System Trust too is reportedly an investor. In addition, some private insurers too have bet on the bonds running into hundreds of crores.
Separately, Yes Bank has issued perpetual bonds worth about INR84bn. They are also known as Additional Tier-1 (AT1) bonds and are set to be written down in a restructuring exercise.
Yes Bank ran into trouble following the central’s bank’s asset quality reviews in 2017 and 2018, which led to sharp increases in its impaired loans ratio and uncovered significant governance lapses that led to a complete change of management, says Fitch Ratings in a report released earlier this month.
Following Yes Bank’s failure to raise fresh capital, the Reserve Bank imposed a moratorium on the bank on 5 March, placed a temporary cap on most withdrawals at INR50,000 and and superseded its board.
Depositors have been assured that their $20bn-plus in Yes Bank will be released after a rescue by the government-controlled State Bank of India. The moratorium is to be raised on 18 March.
Fitch said that contagion risks may heighten asset-quality pressures for non-bank financial institutions, as they are mostly exposed to higher-risk borrowers.