Supreme Court Rules Against Yes Bank's ₹8,415 Crore Bond Write-Off
The Supreme Court has upheld a Bombay High Court order, quashing Yes Bank's 2020 decision to write off ₹8,415 crore worth of Additional Tier-1 (AT1) bonds, a type of risky, high-yield debt that banks can cancel if their capital falls below a certain level. The write-off was part of the bank's rescue plan. The ruling makes the private lender liable for the bonds, which carry coupon rates of 9% and 9.5%. Following the verdict, Yes Bank's shares fell 14.5%, and the bank stated it is evaluating the order's implications.
What this means
This is a landmark decision for Indian banking. For Yes Bank, the immediate impact is a significant hit to its capital adequacy. Analysts estimate its Common Equity Tier-1 (CET1) ratio, a key measure of a bank's core capital, could fall by 230 to 300 basis points (2.3 to 3.0 percentage points), potentially constraining its ability to grow its loan book without raising fresh equity. For the wider market, the ruling offers protection to AT1 bondholders, but also raises questions for regulators about the true loss-absorbing capacity of these instruments in a crisis. We can expect future AT1 bond issuances by other banks to face greater investor scrutiny and potentially demand higher interest rates.
Most affected: Yes Bank's capital base, AT1 bond investors
Key takeaway: Banks relying on AT1 bonds for capital adequacy must now reassess the reliability of these instruments as loss-absorbers during a crisis.
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