Yes Bank Moves Supreme Court Seeking Review of Ruling on Rs 8,415 Crore AT-1 Bond Write-Off

In a bid to avert severe financial and capital adequacy strains, Yes Bank has approached the Supreme Court seeking a review of the apex court's ruling that struck down the lender’s write-off of Additional Tier-1 (AT-1) bonds worth Rs 8,415 crore.

In a regulatory disclosure, the private sector lender stated that it filed a review petition under Article 137 of the Constitution of India challenging the top court's judgment and order dated October 15. That verdict had dismissed appeals filed by Yes Bank, the Reserve Bank of India (RBI), and the central government, thereby affirming a January 20, 2023 ruling of the Bombay High Court. The High Court had determined that the administrator appointed by the central bank during the lender's March 2020 restructuring lacked the legal authority to write down the perpetual instruments after the reconstruction scheme had been finalised.

Origins of the Rs 8,415 Crore Conflict

The dispute traces back to March 2020, when the Reserve Bank of India superseded Yes Bank’s board following a run on deposits, worsening asset quality, and governance failures. Under a government-backed rescue framework that brought in a consortium of lenders led by State Bank of India, the appointed administrator ordered a permanent write-down of the bank's outstanding AT-1 bonds to zero.

The contested instruments comprise two major private placement issuances:

• A Rs 3,000 crore tranche carrying a 9.5% coupon issued in December 2016.
• A Rs 5,415 crore tranche offering a 9% coupon issued in October 2017.

Institutional investors, high-net-worth individuals, and retail bondholders represented by Axis Trustee Services contested the write-off before the Bombay High Court. The bondholders argued that equity shareholders were preserved and recapitalised under the scheme, while higher-ranking hybrid debt instruments were selectively extinguished in breach of regulatory and statutory principles.

Contempt Action and Legal Urgency

Yes Bank's review petition follows closely on the heels of legal escalation by bondholder representatives. Axis Trustee Services recently moved a contempt petition before the Supreme Court, alleging that the bank failed to outline a concrete restoration plan or settle accrued obligations within the window following the October 15 dismissal.

Under Supreme Court procedure, review petitions under Article 137 are typically heard in chambers by the same bench that delivered the original order and are entertained only if an error apparent on the face of the record is established. If the bench finds prima facie merit, the court may re-examine the core question of whether the write-off was legally permissible under the Banking Regulation Act.

Financial and Market Implications

For Yes Bank and its equity shareholders, the reinstatement of Rs 8,415 crore in principal debt alongside accumulated interest spanning over six years poses significant balance sheet hurdles.

Key Balance Sheet Headwinds:

• Capital Adequacy Hit: The bank has estimated that restoring the debt liability could shave roughly 2.5 percentage points off its key regulatory capital adequacy ratios.
• Profitability Impact: If fully provided for on a retrospective basis, the lender indicated the adjustment would swing its September quarter earnings from a reported net profit of Rs 1,080 crore into a net loss of approximately Rs 5,220 crore.
• Recurring Interest Drain: AT-1 bonds carry steep perpetual coupons averaging between 9% and 9.5%, which would re-enter the bank’s operating costs and pressure net interest margins.

The final outcome of the review petition will be monitored closely across Dalal Street. Beyond Yes Bank’s immediate valuation and capital buffers, the proceedings serve as a crucial benchmark for how credit risk, point-of-non-viability triggers, and resolution mechanisms are enforced across India's broader hybrid and Tier-1 debt markets.