Yes Bank: Evaluating all legal options after SC upholds verdict on AT-1 bond write-down

Private sector lender Yes Bank on Friday said it is evaluating all available legal options after the Supreme Court upheld the Bombay High Court judgment against the writedown of Additional Tier1 AT1 bonds worth Rs 8415 crore undertaken in March 2020 as part of the banks reconstruction according to news agency PTIThe bank is examining the judgment in detail including evaluating all available legal options and suitable actionssteps going forward Yes Bank said in a regulatory filingYes Bank said it remains firmly focused on the continued strength of its franchise and on providing customers with consistent service and support across their banking requirementsThe bank has access to appropriate capitalmanagement levers and it preserves the flexibility to undertake additional capital actions as considered appropriate to pursue its growth objectives it saidSupreme Court upholds Bombay High Court decisionThe Supreme Court on Thursday dismissed appeals filed by Yes Bank the Reserve Bank of India RBI and the Union government upholding the Bombay High Courts January 20 2023 judgment on the matter the bank said while adding that it respects the apex courts judgementA bench comprising Justices Dipankar Datta and Augustine George Masih dismissed appeals challenging the Bombay High Courts January 20 2023 judgment which had quashed the writeoffWe see no reason to interfere with the impugned judgment The appeals are dismissed the bench saidThe top court said the conduct of Yes Bank Yes Bank administrator and the RBI was questionable as it put investors at risk Putting the investors to such uncalledfor risk could have well been avoided The purpose of the AT1 bonds is imperative it acts as a safety barrier to the Bank from collapsing altogether That purpose could have been served had the RBI and Yes Bank acted in accordance with the terms of the Master CircularThe RBI was a mere bystander allowing the CET1 ratio of Yes Bank to drop to an astonishing low of 06 per cent while the business of Yes Bank was being carried out in a clandestine manner It cannot be denied that material irregularities in functioning of Yes Bank were noticed much prior criminal prosecution has also been initiated against the personnel of Yes Bank However to have the investors at the receiving end of the administrative lapses would be highly unfair the bench saidThe Supreme Court also said the administrator had no authority to write off the bonds in the absence of a specific provision in the reconstruction schemeWrit petition in High Court challenging the write down of bondsThis was in line with the Bombay High Courts ruling on January 20 2023 The High Court had quashed the decision of Yes Bank taken on March 14 2020 to write off the bonds noting that the administrator did not have the authority to take such a decisionIt had however said its decision would be in abeyance so the central bank and the lender may appeal against it in the apex courtThe High Court had also said The final scheme sanctioned by the Central government did not contain the clause or provision for writing down AT1 bondsAxis Trustee Services on behalf of the AT1 bondholders had filed a writ petition before the Bombay High Court challenging the writeoff in 2020What are Additional Tier 1 bondsAdditional Tier 1 AT1 bonds are perpetual debt instruments issued by banks to strengthen their capital reserves They carry higher risk than conventional bonds and generally offer higher interest rates If a bank faces financial trouble the RBI can direct the cancellation of these bondsKotak Mahindra Asset Management Company prior to the Supreme Court verdict had said it has temporarily suspended subscriptions in two debt mutual fund schemes holding Yes Banks Additional Tier 1 AT1 bonds as a precautionary measure to safeguard investors interestsThe two schemes Kotak Medium Term Fund and Kotak Credit Risk Fund hold Yes Bank AT1 bonds were valued at zero after the fund house said they were written off during the reconstruction of the private sector lender in March 2020With inputs from PTI