Yes Bank AT1 bonds: Supreme Court overturns write-off, but will investors get coupon payments? What's the entire matter

A Ksheerasagar

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.

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.

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.

(With inputs from Reuters)

A Ksheerasagar

Ksheera Sagar has been working as a Market Research Analyst at LiveMint for the past four years, covering stocks, commodities, and broader financial markets. In this role, he closely tracks daily market movements, corporate earnings, sector trends, and macroeconomic developments. <br><br> He has over a decade of experience in the financial services industry and has previously worked with multiple organisations, including global investment bank J.P. Morgan, bringing strong research experience into the newsroom. <br><br> During his career, he has gained extensive exposure to equity research, market analysis, and financial data interpretation, strengthening his expertise across asset classes and market cycles. <br><br> He is known for his data-driven analysis and crisp, listicle-style market stories that break down complex financial developments across key markets for a wide audience. His strong research skills enable him to write detailed and insightful stories on stocks and sectors, focusing on the underlying factors driving market movements. <br><br> His work combines quantitative insights with clear storytelling, presenting financial developments in a clear and structured manner. Moreover, he enjoys writing multibagger and listicle-style copies. Outside of work, Ksheera enjoys playing the piano and exploring new places. He has a keen interest in travel, music, and continuously learning about global markets and economic trends.

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