The Bombay high court on Friday set aside a March 2020 decision by the banking regulator and the Yes Bank administrator to write off ₹8,415 crore worth of the bank’s additional tier-1 bonds as part of a bailout for the private lender.
Reserve Bank of India directed the Yes Bank administrator to write off these bonds as part of a restructuring scheme to save the bank from collapse, in a rescue led by the State Bank of India. Following the decision, a clutch of aggrieved retail bondholders challenged the move in court.
“The judgement will set a precedent since Yes Bank will now have to pay the dues to all the bondholders, which will be monitored by the RBI,” said Srijan Sinha, partner of Edictum Law and counsel for the bondholders.
AT-1 bonds are unsecured or perpetual bonds with no maturity date and are used by banks to increase their equity base and comply with Basel III norms.
In March 2020, RBI superseded Yes Bank’s board and appointed Prashant Kumar as administrator, citing the bank’s adverse financial position, mainly due to its inability to raise fresh capital. It was then put through a restructuring scheme involving the bond write-off. The Yes Bank AT1 Bond Holders Association approached the high court for claims worth ₹160 crore, challenging the legality and validity of the write-off.
In its writ petition, the association said, “Our members are individual retail investors, most of whom are above 60 years of age, who have been wrongfully lured into investing in AT-1 bonds issued by Yes Bank, which were meant for allotment only to institutional investors and corporate bodies for which they were ineligible.”
The association said the bank’s relationship managers had mis-sold the bonds to retail investors as ‘super fixed deposits’.
In October 2020, the Madras high court upheld the RBI’s circular on AT-1 bonds in a similar petition filed by 63 Moons.
In September 2022, the markets regulator, the Securities and Exchange Board of India (Sebi), in its order, said that it had initiated a probe and imposed a penalty of ₹2 crore on former Yes Bank managing director and chief executive officer Rana Kapoor in this matter. Kapoor challenged the order, and the matter is pending before the Securities Appellate Tribunal in Mumbai.