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In its special leave petition (SLP) to the Supreme Court, appealing against the Bombay HC order overturning the write-down of the bank’s AT1 bonds, YES Bank has said that regulatory norms allow for their write-down and that the administrator was well within his powers to do so.
Bombay HC had ruled in favour of bondholders saying that even though the draft RBI scheme proposed such a write-down, the final YES Bank Reconstruction Scheme 2020 did not provide for it and thus, the administrator had overreached his authority.
“Pertinently, the amendment to Clause 6 of the Draft Scheme (based on internal Note Sheet shared by the Ministry of Finance under RTI) and incorporation in the Final Scheme ensued from the fact that the Information Memorandums and RBI Master Circular itself provided for writing down of the AT1 bonds and as such no specific clause was required in the Final Scheme for writing down of AT1 bonds,” the bank said as per the SLP accessed by businessline.
In the plea, YES Bank said that the majority of the grievances by bondholders are towards the intermediaries that sold them the bonds, whereas others are unconnected to the adjudication of the issue of writing down the AT1 bonds.
Absorbing loss
The AT1 bonds, issued in December 2016 and October 2017 in the nature of quasi-debt instruments, have a ‘Loss Absorbency’ feature and their purpose is to absorb shocks arising from financial and economic stress faced by a bank, and mitigate the risk of spillover from the financial sector to the real economy, it said.
YES Bank said that the auditors’ report had also “clearly indicated” that the write-down was necessary if YES Bank was to continue as a “going concern”. Further, with respect to the timing, it said that as per the Final Scheme, the AT1 bonds were to be written down or converted before the infusion of fresh capital and implementation of the Final Scheme.
In the Bombay HC hearing, the petitioners had argued that the bonds were wrongfully sold to retail investors without disclosing the inherent risk; the bank reported artificial NPAs which led to high divergence in financials, unequal treatment of shareholders and AT1 bondholders, lack of basis for not writing down AT1 bonds worth ₹280 crore that were issued in 2013, and misuse of funds which ultimately benefitted the consortium of new investors in the bank.
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