**Supreme Court to Conclude Hearings on Yes Bank Bond Write-Off Case**
The Supreme Court of India announced on Thursday that it will wrap up hearings in the third week of January regarding appeals from the Reserve Bank of India (RBI), Yes Bank, and others. These appeals challenge the Bombay High Court’s 2023 decision that invalidated the March 2020 write-off of approximately ₹8,415 crore in additional tier-1 (AT-1) bonds. A bench comprising Justices Dipankar Datta and Augustine George Masih has scheduled the resumption of proceedings for January 15, after which the court will reserve its judgment.
The apex court is reviewing the high court’s January 2023 ruling, which deemed the write-off invalid and favored bondholders who contended that they were unfairly burdened with losses before equity shareholders. This write-down was a crucial element of an RBI-led reconstruction plan aimed at recapitalizing Yes Bank during its crisis in March 2020, characterized by rising bad loans, governance issues, and severe liquidity challenges.
In December 2016, Yes Bank issued ₹3,000 crore in AT-1 bonds with a 9.5% coupon rate, followed by an additional ₹5,415 crore in October 2017 at a 9% coupon. Should the Supreme Court uphold the high court’s ruling, Yes Bank may be required to compensate bondholders with 9% annual interest, a decision that could significantly impact the bank’s financial health and set a precedent for future banking resolutions.
During the hearing, senior advocate Aryama Sundaram, representing Axis Trustee on behalf of institutional AT-1 bondholders, argued that investors were fully aware of the risks associated with these high-yield instruments and should not contest the outcome following a trigger event. He emphasized that AT-1 bonds were designed to absorb losses during financial distress, as clearly outlined in the Information Memorandum, RBI Master Directions, and bond terms.
Sundaram pointed out that the writ petition filed in the Bombay High Court specifically targeted the administrator’s order from March 14, 2020, rather than the RBI-approved reconstruction scheme or related regulatory circulars. He contended that reversing the decision would unjustly shift losses onto small depositors and the State Bank of India-led rescue consortium.
In previous hearings, the Yes Bank administrator defended the write-off as legally valid and necessary to avert collapse, citing powers under the Basel-III Master Circular, Clause 57 of the Information Memorandum, and Section 36ACA of the Banking Regulation Act. The administrator stated that the statutory trigger conditions, including a breach of the common equity tier-1 (CET-1) capital threshold and the bank reaching a point of non-viability, had been met. He further asserted that the write-down was essential for rebuilding the bank’s CET-1 capital, ensuring its financial stability, and facilitating the State Bank of India’s ₹10,000 crore investment.
**FAQ**
**What are AT-1 bonds and why are they significant in this case?**
AT-1 bonds, or additional tier-1 bonds, are a type of financial instrument used by banks to raise capital. They are designed to absorb losses during financial distress, making them riskier investments. In this case, the Supreme Court’s decision on the write-off of these bonds could have significant implications for bondholders and the banking sector as a whole.
