Supreme Court rules against Yes Bank’s write-off of Rs 8,415 crore AT1 bonds
The ruling concludes a six-year legal dispute that began when the Reserve Bank of India (RBI) assembled strong lenders such as State Bank of India (SBI) and Kotak Mahindra to bail out the sinking Yes Bank and wrote down its AT1 bonds as part of the revival package. Yes Bank shares tumbled 14.53% Thursday to ₹18.12 apiece after the ruling, while the broader market surged nearly 2%.
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Supreme Court rules against Yes Bank’s write-off of Rs 8,415 crore AT1 bonds
The Supreme Court confirmed the decision of the Bombay High Court regarding Yes Bank’s AT1 bonds. This ruling impacts ₹8,415 crore in bonds written off during the bank’s 2020 restructuring. The court noted that the administrator lacked the authority to write down these bonds. Bondholders had contested the write-off, citing mis-selling of the securities. Yes Bank is now obligated to repay the bonds along with accrued interest.
The bench, comprising Justices Dipankar Datta and Augustine George Masih, held that the Bombay High Court was right in ruling the administrator did not have the powers to write down the bonds that were not part of the restructuring scheme, and questioned whether the RBI was not aware of it. “Was the RBI, the regulator, not aware of the consequences of not retaining the write-down clause in the reconstruction scheme? Was the RBI and the administrator appointed by the RBI not aware as to who had the authority to write down the AT1 bonds?” the bench asked, while ruling in favour of the bondholders.
ET BureauRisky securities
AT1 bonds are the riskiest among fixed-income securities, but holders are rewarded with high returns. These bonds came into being after the 2008 global financial crisis. They are perpetual in nature, and these instruments are converted into equity or written off when the issuing bank’s capital is eroded.
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AT1 bonds have come under the judicial lens in multiple geographies after the Swiss authorities wrote down about $17 billion of Credit Suisse bonds to facilitate the collapsed bank’s takeover by the UBS Group three years ago.The banking regulator in March 2020 orchestrated the largest bank bailout in Indian history after Yes Bank teetered amid charges of malfeasance, fraud and wrongdoing. It assembled a bunch of banks such as SBI to invest equity into Yes Bank. As part of the restructuring, an administrator wrote down the risky AT1 bonds, which had provisions for such an act.
An administrator appointed under the Banking Regulation Act acts as a substitute for the Board of Directors, to run the company. Any act performed by the administrator beyond the powers clothed upon him would be wholly illegal and void and he could not have assumed the regulatory role of the RBI and exercise a power which it did not have at all to write down AT1 bonds, the court said in its ruling.
“It is a settled legal principle that a power not specifically conferred cannot be implicitly vested through a general, omnibus savings clause. To that extent, we rule against Yes Bank and the administrator,” the apex court said.
‘Retail’ bondholders
The ruling comes as a major relief to Yes Bank’s AT-1 bondholders, who had argued that the bonds were mis-sold to them.
and could not be written off post the finalisation of the restructuring plan. Now, the private lender is liable to pay the AT-1 bonds liability of Rs 8,415 crore plus interest to the bondholders.
