Yes Bank shares tumbled 10% on Thursday to the lower circuit at Rs 19.08 each, after the Supreme Court upheld the decision of the Bombay High Court setting aside the bank's Rs 8,415-crore additional tier-1 (AT-1) bonds write-off. The decision was a blow to the Yes Bank legal battle over the bonds sold ahead of its 2020 reconstruction.
Key highlights
- Yes Bank shares fell 10% to Rs 19.08 after Supreme Court upheld the AT-1 bond ruling.
- Appeals filed before the Supreme Court were dismissed and the Bombay HC judgment setting aside the Rs 8,415 crore write-off remains unchanged.
Investors responded to Supreme Court's verdict with Yes Bank shares falling Rs 2.12 or 10% to Rs 19.08. The decline was due to the thinness in market sentiment after the high court rejected appeals against the court's decision.
Supreme Court Upholds Bombay High Court Ruling on Yes Bank AT-1 Bonds
A bench of Justice of the Supreme Court has rejected the appeals challenging the order passed by the Bombay High Court, which had ruled in favour of the bondholders. The High Court's verdict remains unchanged, as AT-1 bond write-off, done during Yes Bank's reconstruction, was Rs 8,415 crore.
The Supreme Court examined whether the bank’s administrator had the power to write down the bonds without such a specific provision in the reconstruction scheme. It also took into account whether the action adhered to the RBI (the Reserve Bank of India's) master circular and terms of the instruments.
The bank has failed to get any relief from the Supreme Court in challenging the earlier judgment by filing the appeals.
Why Yes Bank Wrote Off Rs 8,415 Crore in AT-1 Bonds?
The conflict goes back to 2020, when Yes Bank hit a financial crisis and the RBI stepped in to aid the bank in its reconstruction. In the process, the bank has written off AT-1 bonds to the tune of Rs 8,415 crore.
That this was legal was then challenged in court. Bondholders contested the write-off and the Bombay High Court intervened in their favour, quashing the write-off.
The latest Supreme Court ruling makes that clear, and the bank's legal battle is on hold for now. The focus is on the authority to write-off the instruments under the reconstruction scheme and relevant regulations and contractual clauses.
What Are AT-1 Bonds and Why Do They Matter?
Additional Tier-1 bonds are long-term bonds, which banks issue to bolster their regulatory capital. They are not fixed bonds, so they don't have a specific maturity date and the investors risk more.
In certain circumstances, AT-1 instruments may be written down or transformed to equity in accordance with the relevant regulatory and contractual requirements. These features are intended to help banks absorb losses and support capital adequacy during periods of financial stress.
However, the Yes Bank case highlights the importance of the legal provisions governing such instruments, including the powers available to a bank’s administrator during a reconstruction process.
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What the Supreme Court Ruling Means for Yes Bank
The Supreme Court’s decision represents a legal setback for Yes Bank because the Rs 8,415-crore AT-1 bond write-off remains quashed under the Bombay High Court’s judgment. The ruling also reinforces the importance of the terms of reconstruction schemes and the regulatory framework applicable to bank capital instruments.
The immediate market reaction was visible in Yes Bank share price, which fell 10% to Rs 19.08 and hit the lower circuit during Thursday’s trading session. Investors will continue to monitor developments related to the case and their potential implications for the bank.
