YES Bank moves SC against Bombay HC ruling on AT1 bond write-off

YES Bank has moved the Supreme Court against the Bombay High Court (HC) order setting aside the lender’s decision to write off additional tier 1 (AT1) bonds worth over Rs 8,400 crore.

On January 20, the Bombay HC had ruled that the Reserve Bank of India-appointed administrator had exceeded his powers and authority in writing off AT1 bonds after the bank was reconstructed on March 13, 2020. However, the judgement did not go into the merits of the decision to write off the AT1 bonds. It just questioned the authority of the administrator when he made the call to write down the perpetual bonds.

The HC had given the bank six weeks’ time to challenge the order in the apex court.

In response to Business Standard’s email, the bank’s spokesperson confirmed challenging the Bombay HC order but did not specify the reliefs the lender was seeking from the apex court.

The bank, in all likelihood, is expected to make a case that its erstwhile administrator was well within the powers to write down the perpetual bonds.

The RBI had put YES Bank under a moratorium in 2020 after alleged misconduct by its founders led to a huge chunk of loans turning sour. Consequently, the lender was bailed out by fellow banks through a RBI-led scheme.

AT1 bonds were written off as part of a restructuring plan to rescue YES Bank in March 2020. Equity holders, on the other hand, did not face a similar write-off, but 75 per cent of their shares were subject to a lock-in for three years. 

AT1 bonds are perpetual debt instruments that banks use to augment their core equity base and, thus, comply with Basel III norms. These bonds were introduced by the Basel accord after the global financial crisis to protect depositors. They act as buffers for banks in times of stress and are perceived to be safer than equity shares of a bank.

Prashant Kumar, managing director and chief executive officer of YES Bank, in a post-earnings media call, had said the lender had strong legal grounds to challenge the Bombay HC’s order. He had also said that even if the bonds were to be reinstated, it would not have a bearing on the total capital adequacy ratio of the bank. In an extreme case, when AT1 bonds are restored, Common Equity tier I may come down and AT1 will go up, he had said.