The non-convertible debenture holding by two big mutual funds — Reliance Mutual Fund and Franklin Templeton — is in focus since some investors fear that ratings assigned to these instruments could be shaky after the steep stock price fall in the past few months.

YES Bank shares ended 1.2 per cent lower on Friday at Rs 195.55, down from its 52-week high of Rs 404.

To be sure, there is no breach of covenants yet. But the YES Bank stock price has turned more volatile in the past few weeks as at least three directors have resigned from the board. Former State Bank of India chairman OP Bhatt also quit the CEO selection panel about 10 days ago.

An email and text message sent to Franklin Templeton did not elicit any response.

“The transaction is more than adequately secured. The total exposure against security of YES Bank shares, after netting off cash top-up margins, is approximately Rs 1,400 crore between one another mutual fund and Reliance Mutual Fund. The value of the security at current prices, is approximately Rs 4,000 crore, which is nearly 300 per cent. There has been no breach of any covenant. Hence, there is no question of any MTM or other losses to investors,” said Sundeep Sikka, CEO of Reliance Mutual Fund.

Morgan Credits Pvt Ltd, which owns 3.04 per cent in YES Bank has raised Rs 1,160 crore from sale of debentures. One of the covenants is that there should be enough security cover for these debentures, i.e., the value of collateral. This was rated by Care Ratings of CARE A- and bears a stable outlook.

“While calculating the limit of Rs 1,160 crore, total outstanding borrowings (excluding accrued interest) as well as all future contingent exposures (including but not limited to corporate guarantee, undertaking etc) of MCPL shall be taken into account, while the debt cap (i.e. ratio of total borrowings of MCPL to market value of YES Bank Ltd (YBL) shares held by MCPL) shall not exceed 0.5x at all times," Care Ratings said in its rating statement issues in July this year.

Another firm, YES Capital (India) Private Ltd has raised Rs 630 crore with CARE AA rating and a stable outlook. This issue also has similar covenants with a stronger cushion. YES Capital owns 3.27 per cent in YES Bank, regulatory filings show.

“The cover (i.e. ratio of market value of YBL shares held by the YCPL to total borrowings) shall be at least 3.3x at all times," Care said in a note in March. “In the scenario of a zero coupon NCD issuance, accrued interest at the end of each year will be added to total borrowing to arrive at 3.3x cover on YBL shares for the ensuing year." Investors fear that these covenants and the stock price fall could have a further bearing on the share price.

“There may be no breach as yet, but investors always fear about what could happen if there is a breach," said a fund manager who did not want to be identified. “There is always an option of a top-up from the promoter and the mutual funds may be comfortable with that at least for now." The rating company draws comfort from the creditworthiness of YES Bank, but at the same time lists the diminution of value of YES Bank share value.

“The comfort can be drawn from performance of YES Bank Ltd which enjoys good credit worthiness," said Care. ``Substantial diminution in the value of investments held by YCPL in YBL is the key rating sensitivity."