Mumbai, India — Despite a recent Supreme Court ruling overturning the write-off of its Additional Tier-1 (AT-1) bonds, Yes Bank is reportedly not expected to make coupon payments on these instruments this year. Sources familiar with the matter indicate the bank is preparing to seek a review of the apex court's decision.
Supreme Court Upholds Bombay High Court Verdict
On October 15, the Supreme Court dismissed appeals filed by Yes Bank, the Reserve Bank of India (RBI), and the Union government. This decision upheld the Bombay High Court's January 20, 2023, judgment, which was against the write-off of AT-1 bonds valued at ₹8,415 crore. This ruling marks a significant legal victory for the retail investors whose holdings were cancelled during Yes Bank's reconstruction.
Bondholders Press for Payments
Retail investors, many of whom are still holding these securities, confirmed they had not received coupon payments due on October 18, just three days after the Supreme Court's verdict. In a letter reviewed by Reuters, bondholders urged Axis Trustee Services Ltd, the debenture trustee, to intervene and obtain immediate clarity from Yes Bank regarding the status of these payments.
“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 stated in their letter.
Yes Bank's Stance and Future Actions
However, the sources cited by Reuters suggest that the bond documentation grants Yes Bank discretion over coupon payments. Furthermore, the question of payment can only be properly considered once the AT-1 bonds are formally reinstated on the bank’s balance sheet. The bank's intention to seek a review adds another layer of complexity to the situation.
Background: Yes Bank's 2020 Rescue
The write-down of these AT-1 bonds occurred in March 2020 as a critical part of Yes Bank's reconstruction efforts. At the time, the lender was grappling with a severe financial crisis due, in part, to mounting bad loans. The RBI intervened, taking control of the bank and imposing withdrawal restrictions, before a consortium of lenders led by the State Bank of India injected fresh equity capital to stabilize the institution.
Additional Tier-1 (AT-1) bonds are perpetual debt instruments designed to help banks bolster their capital base. They typically offer higher interest rates due to their inherent risk, as they can be written down or cancelled under specific circumstances, particularly when a bank faces financial distress and needs to absorb losses.
Impact on Capital Ratios and Future Flexibility
Following the Supreme Court ruling, Yes Bank indicated that its Common Equity Tier 1 (CET1) capital ratio could see a decline of approximately 250 basis points. Despite this, the bank's overall Tier 1 capital ratio is projected to remain unchanged at 14% on a pro forma basis. Yes Bank has affirmed that it possesses various capital-management options and maintains flexibility to undertake further capital actions, if necessary, to support its growth objectives.