Supreme Court ruling on AT-1 bonds threatens to turn Yes Bank profit into massive loss

The Supreme Court on Thursday upheld the Bombay High Court's January 2023 judgment that quashed the write-down of Additional Tier-1 (AT-1) bonds issued by Yes Bank. The apex court dismissed appeals filed by Yes Bank, the Reserve Bank of India and the Union government, dealing a significant blow to the bank's financial position.

The ruling has substantial implications for Yes Bank's quarterly results. The potential reversal of the AT-1 bond write-down could convert the bank's second-quarter profit into a loss of Rs 5,217 crore, according to preliminary assessments. AT-1 bonds are hybrid securities that sit between equity and debt in a bank's capital structure.

Yes Bank had written down AT-1 bonds worth Rs 3,250 crore in March 2020 as part of a debt restructuring plan following the bank's financial crisis. The Bombay High Court's earlier judgment had found the write-down improper, leading to the current appeal to the Supreme Court.

The Supreme Court's decision affirms that the bond write-down was not justified and must be reversed. This judgment sets a precedent for how such financial instruments are treated during banking crises and has broader implications for other financial institutions holding similar bonds.

Photo: The Supreme Court of India, New Delhi, December 2019. Subhashish Panigrahi via Wikimedia Commons (CC BY-SA 4.0).