Shares of Mumbai-based private lender Yes Bank Ltd. fell 10% on Thursday, October 15, after the Supreme Court ruled against the write-off carried out by the lender of its Additional Tier-1 (AT-1) bonds worth ₹8,400 crore, as part of its rescue and restructuring exercise in 2020.
The Supreme Court has upheld the decision of the Bombay High Court, that had quashed the write-off the AT-1 bonds. The Apex Court held that Yes Bank will have to honor the ₹8,400 crore AT-1 Bonds as per the prescribed coupon rate of 9.5% and 9%.
The court also observed that the write-off of the ₹8,400 crore AT-1 bonds could not have been done by the Yes Bank administrator and was not consistent with the master circular.
During Yes Bank’s rescue in 2020, the administrator had approved the write-off of these AT-1 bonds, stating that the decision is necessary for the bank’s survival. Yes Bank had raised ₹8,415 crore through the issue of these AT-1 bonds back in 2016 and 2017.
Bond holders represented by Axis Trustee Services argued against a write off, and had questioned the legal authority of the administrator to write off bonds, claiming that only RBI could approve any such write off.
Under the Basel-III regulations, AT-1 bonds are used as hybrid capital instruments designed to absorb losses when the bank hits a point of non-viability. The write-off meant that the AT-1 bondholders lost their entire principal. According to information available, over 97% of the AT-1 bondholders were individual bank customers.
Back in 2021-2022, market regulator Securities and Exchange Board of India had penalized former Yes Bank MD & CEO Rana Kapoor for mis-selling, citing inadequate risk disclosures, and targeting unsuitable clients including senior citizens.
The decision taken by the administrator to write-down the AT-1 bonds was taken quashed by the Bombay High Court in January 2023. Yes Bank had appealed against the decision in the Supreme Court back in March 2023.
Shares of Yes Bank are trading 10% lower on Thursday after the Supreme Court Judgment at ₹19.08. The Stock has also turned negative on a year-to-date basis.