The Supreme Court overturned the ₹8,415 crore Yes Bank AT-1 bond write-off on October 15. Despite this, the bank is unlikely to pay coupons due this year. Investors said they got no payments on October 18. The bank now plans to seek a review of the court’s recent ruling.
Yes Bank is unlikely to pay coupons due this year on its Additional Tier-1 (AT-1) bonds despite a Supreme Court ruling overturning their write-off during the lender’s 2020 rescue, Reuters reported, citing two people familiar with the matter.
The bank is preparing to seek a review of the ruling, the report said, citing one of the sources, while bondholders are pressing for payment of coupons that have remained unpaid since Yes Bank wrote off the bonds six years ago.
Retail investors holding the bonds said on Thursday that they had not received coupon payments due on October 18, three days after the Supreme Court ruling, according to the report.
In a letter to Axis Trustee Services Ltd, reviewed by Reuters, investors sought clarity on the status of the coupon payments and urged the debenture trustee to intervene.
“We call upon the Trustee to obtain immediate written confirmation from Yes Bank as to whether this coupon has been paid, cancelled, or remains outstanding,” the bondholders said.
The sources, however, said the bond documentation gives the bank discretion over coupon payments and that the issue can only be considered once the AT-1 bonds are reinstated on the bank’s balance sheet.
Supreme Court overturns ₹8,415 crore AT-1 bond write-off
Last week, the Supreme Court upheld the Bombay High Court judgment against the write-down of Additional Tier-1 (AT-1) bonds worth ₹8,415 crore, undertaken in March 2020 as part of the bank’s reconstruction.
The verdict marks a significant victory for bondholders whose investments were cancelled during the bank’s rescue six years ago.
On October 15, the apex court dismissed appeals filed by Yes Bank, the Reserve Bank of India (RBI) and the Union government, upholding the Bombay High Court’s January 20, 2023, judgment on the matter.
Why did Yes Bank write off AT-1 bonds in 2020?
Yes Bank plunged into a liquidity crisis in March 2020 as bad loans mounted, prompting the Reserve Bank of India (RBI) to take control of the lender and impose restrictions on withdrawals. To stabilise the bank, a consortium of lenders led by the State Bank of India (SBI) was assembled to inject fresh equity capital.
As part of the reconstruction, the bank’s administrator wrote down around ₹8,415 crore worth of Additional Tier-1 (AT-1) bonds, prompting Axis Trustee Services and other bondholders to challenge the move in court.
AT-1 bonds are perpetual instruments issued by banks to strengthen their capital base. They are riskier than traditional bonds and typically offer higher interest rates. Under specified circumstances, these bonds can be written down or cancelled to absorb losses when a bank faces financial distress.
Meanwhile, the bank said that its Common Equity Tier 1 (CET1) capital ratio could decline by around 250 basis points. The bank's overall Tier 1 capital ratio, however, is expected to remain unchanged at 14% on a pro forma basis, the bank said in its exchange filing, a day after the SC ruling.
The bank also said it has access to various capital-management levers and retains the flexibility to undertake additional capital actions, as considered appropriate, to pursue its growth objectives.