Shares of YES Bank experienced a significant drop of 9% in afternoon trading today, following reports that the Supreme Court has overturned the bank's decision to write off Rs 8,415 crore worth of Additional Tier-1 (AT1) bonds. The stock fell to Rs 19.30 from its previous close of Rs 21.21, causing the lender's market capitalization to slide to Rs 60,863 crore. This judicial reversal could lead to substantial financial liabilities for the bank.
Supreme Court Overturns AT1 Bond Write-Off
The Supreme Court's decision sets aside the controversial write-off of AT1 bonds that occurred in March 2020. This action was part of a rescue and reconstruction plan for YES Bank, led by the Reserve Bank of India (RBI). The original write-down had wiped out investments for over 1,300 retail investors, alongside major institutional investors including Nippon Mutual Fund, Kotak Mutual Fund, and Franklin Templeton.
Background to the Dispute
Bondholders had challenged the write-off, arguing that it violated the established hierarchy of claims, especially since equity shareholders retained some residual value while their AT1 bonds were completely extinguished. This legal battle has been ongoing for several years.
Bombay High Court's Prior Ruling
On January 20, 2023, the Bombay High Court had initially set aside the write-down. The High Court ruled that the RBI-appointed administrator lacked the legal authority to extinguish the bonds and also highlighted procedural irregularities in the decision-making process.
Supreme Court's Involvement and Final Decision
YES Bank, the RBI, and the Central government subsequently appealed the Bombay High Court's ruling to the Supreme Court. They contended that overturning the write-off could undermine the established framework for resolving distressed banks and introduce uncertainty into future rescue efforts. In March 2023, the Supreme Court had stayed the implementation of the High Court's order, keeping the dispute unresolved. The apex court continued hearing final arguments into early 2026, culminating in today's decision to reverse the write-off.
Financial Implications for YES Bank
The reversal of the Rs 8,415 crore AT1 bond write-off now exposes YES Bank to significant financial obligations. The precise impact and timeline for resolution remain to be seen, but the decision introduces considerable uncertainty regarding the bank's financial outlook and potentially sets a precedent for how distressed bank resolutions are handled in the future.