Bombay HC sets aside RBI order to write-off YES Bank’s ₹8,300 crore AT-1 bonds

The Bombay High Court on Friday set aside the order by the administrator of YES Bank which directed that the additional tier-I (AT-1) bonds of the bank worth ₹8,300 crore be written-off as part of its reconstruction.

While the final judgment is still awaited, the implication of the ruling is that the private sector lender will how have to repay the bondholders, experts said.

“The main argument was the departure from RBI’s draft reconstruction scheme which had suggested the write-off, to the final reconstruction scheme notified by the Centre which suggested that the bond holdings shall subsist post reconstruction,” said Srijan Sinha, Partner at Edictum Law & Co.

The lawyers argued that the final YES Bank Reconstruction Scheme, 2020, notified under the Banking Regulation Act, will prevail over anything inconsistent or anything issued before it.

Sinha was representing the ‘YES Bank AT1 Bondholders’ Association’ which constituted 400 individual investors. A total of seven writ petitions were filed against YES Bank, including four institutional petitions and three petitions by individual investors.

“Most of these individuals were senior citizens above the age of 70 years and they had given their entire life savings because they were mis-sold these bonds,” he said.

The Bombay HC has granted YES Bank six weeks for the implementation of this order, which means that the bank will need to arrange the required funds in this period to make the payments post six weeks.

In addition to RBI and YES Bank, SEBI and intermediaries such as Karvy — that had facilitated the sale of these bonds to retail investors — were party to the case, experts said.

One of the major bondholders, 63 moons technologies, earlier on Friday said it had filed the petition on June 1 against YES Bank, RBI and the administrator as the company’s ₹300 crore investment in the AT1 bonds had been “completely misused by the promise of good returns”.

As a part of a plan to revive YES Bank, a consortium of 10 institutional investors led by State Bank of India has invested ₹10,000 crore in YES Bank. As a part of the reconstruction scheme, RBI had suggested writing off the bonds citing Basel-III norms which say that AT1 bonds have no guarantee. However, 63 moons argued that a write-off can only be done when the equity capital has virtually lost all value.

Industry experts said YES Bank and RBI are likely to challenge the order. “The court order could put YES Bank insolvent, putting at risk the entire investments made by banks, including SBI. It is unlikely to go unchallenged,” said an expert.

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