Supreme Court Halts Yes Bank's AT1 Bond Write-Off, Sparking Market Jitters

In a landmark ruling that sent shockwaves through India's financial markets, the Supreme Court of India on Thursday set aside Yes Bank controversial write-off of Rs 8,415 crore worth of Additional Tier 1 (AT1) bonds. Upholding a 2023 Bombay High Court judgment, the apex court delivered a major victory to bondholders whose investments were wiped out during the bank's 2020 rescue, while Yes Bank shares plummeted by as much as 20% following the verdict. The legal dispute, spanning over six years, centered on the authority of the Yes Bank administrator to extinguish these high-risk bonds. The Supreme Court pointed out that the final Reconstruction Scheme, notified on March 13, 2020, conspicuously omitted the provision for writing down AT1 bonds that was present in its draft version, effectively stripping the administrator of the power to execute such a move. The court also critically observed the Reserve Bank of India (RBI) for its "mere bystander" role as Yes Bank financial health deteriorated, and admonished the bank for allegedly mis-selling these complex instruments to individual retail investors, contravening established guidelines. The ruling now places Yes Bank under an obligation to re-evaluate the status of these bonds, potentially facing significant financial liabilities including accrued coupon payments from 2020 onwards. This verdict is expected to compel banks to exercise greater caution and transparency in future AT1 bond issuances and their associated risk disclosures, especially given its potential to influence capital raising costs across the Indian banking sector. Financial observers will be keenly watching Yes Bank next moves and the broader ripple effects on investor confidence in India's hybrid capital market.