Supreme Court Restores Rs 8,415 Crore Yes Bank AT-1 Bonds
The Supreme Court on Thursday, October 15, dismissed appeals by Yes Bank, the Reserve Bank of India (RBI) and the Union government, and upheld a January 2023 Bombay High Court ruling that set aside the write-off of Rs 8,415 crore of the bank’s Additional Tier-1 (AT-1) bonds. The bench of Justices Dipankar Datta and Augustine George Masih held that the write-off ordered in March 2020 was not legally valid.
What The Court Decided
The bonds were issued in two tranches: Rs 3,000 crore in December 2016 and Rs 5,415 crore in October 2017. After the RBI placed Yes Bank under a moratorium on March 5, 2020, a draft reconstruction scheme provided for writing down the bonds. The final scheme notified on March 13 dropped that clause, but the administrator ordered the write-off the next day.
According to ThePrint’s reading of the judgment, the court held that the administrator could exercise the powers of the bank’s board but could not take over the RBI’s separate role of declaring the bank non-viable, and that a general savings clause could not supply the missing power. The court said the issue was how the write-off was carried out, not whether such bonds can ever be written down.
Why It Matters For Ordinary Investors
AT-1 bonds are high-risk instruments meant for experienced investors, yet some were held by individuals. The court criticised the RBI for allowing AT-1 bonds to be sold to individuals, which the framework did not permit, and for letting the bank’s capital position weaken.
With the write-off set aside, bondholders’ claims are no longer extinguished. The court also directed that annual coupon payments be made as set out in the bonds’ information memoranda. How and when the principal will be dealt with has not yet been spelt out.
Impact On Yes Bank
Yes Bank’s shares fell steeply after the ruling, The Tribune reported, as the bank now faces a large liability that it had treated as settled since 2020. The Tribune noted that it is unclear whether Japan’s SMBC, which owns nearly a quarter of the bank, had factored this into its assessment.
The rescue in 2020 was led by the State Bank of India and other institutions. Earlier IPB coverage of bank troubles includes the Lakshmi Vilas Bank board crisis.
The bank, the RBI and the government are expected to study the judgment before announcing how they will comply. Bondholders may wish to follow official communication from the bank and their trustees. More updates are on our Daily Updates page.
Based on reporting by ThePrint and The Tribune.
Image: IPB.
