Yes Bank Reviews AT-1 Bond Coupon Payments Following Supreme Court Ruling

Yes Bank, a private sector lender, announced that it has not yet determined whether to pay coupons on its additional tier-1 (AT-1) bonds. The bank stated that it retains full discretion over coupon payments as per the terms outlined in the bond agreements.

In an official filing made public on Saturday, Yes Bank confirmed that it is carefully reviewing a recent Supreme Court judgment that invalidated the write-off of ₹8,415 crore worth of its AT-1 bonds executed in March 2020. The bank is currently analyzing the implications of this ruling and exploring its options moving forward.

The bank also disclosed that it has received inquiries from bondholders regarding the coupon payments due on its 9 percent AT-1 bonds. These bonds were issued under an information memorandum dated October 17, 2017, with the next coupon payment scheduled for October 18, 2026.

Since the evaluation process is ongoing, Yes Bank has not yet made a decision on whether to exercise its discretion to pay or withhold the coupon. The bank promised to communicate any decisions after completing its assessment.

"Given that the Bank has not completed the evaluation and assessment, the Bank will communicate its decision, if any, on whether or not exercise of coupon discretion is required in respect of the AT-1 Bonds after it has completed the evaluation and assessment," the filing stated. The institution expects to finalize its review in due course and issue further disclosures as required by stock market regulations.

This development follows a significant Supreme Court verdict earlier this month, which upheld the Bombay High Court's earlier ruling to reverse the write-off of the bonds. The courts found that Yes Bank's administrator at the time had exceeded his authority and violated the applicable regulatory framework when the write-off was implemented in March 2020.

The Supreme Court bench, composed of Justices Dipankar Datta and Augustine George Masih, declined to overturn the January 20, 2023 High Court decision. The judgment highlighted that the Reserve Bank of India (RBI) had not played an active role even as Yes Bank's Common Equity Tier-1 (CET-1) ratio plunged to 0.6 percent.

Importantly, the Supreme Court instructed that annual coupon payments on the bonds should continue unaffected by the ongoing appeals and must follow the terms specified in the information memoranda. However, it remains the case that these coupon payments are discretionary and non-cumulative under the bond agreements.

Yes Bank has also indicated that reinstating the principal amount of the AT-1 bonds would result in a pro forma improvement of 250 basis points in its CET-1 ratio as measured on June 30, 2026. The Tier-1 capital ratio, meanwhile, would stay steady at 14 percent.

Despite the legal and financial developments surrounding the bonds, Yes Bank assured customers and investors that its daily operations and client services continue without disruption across all branches and digital platforms.

AT-1 bonds are a type of contingent convertible capital instrument that banks issue to shore up their capital base. They are considered high-risk but can provide banks with flexibility to absorb losses during financial distress. The handling of coupon payments on such bonds often reflects a bank's financial health and regulatory environment.

This ongoing situation with Yes Bank’s AT-1 bonds illustrates the challenges financial institutions face in balancing regulatory compliance, investor interests, and capital adequacy requirements. Market participants and bondholders will be watching closely as the bank finalizes its evaluation and announces its position on coupon payments.