The Bombay High Court’s ruling that quashed Yes Bank’s 2020 decision to write down Rs 8,400 crore of additional Tier-1 (AT1) bonds is held in abeyance for six weeks, giving the lender an opportunity to appeal in the Supreme Court.

The court’s decision, though, will not create any immediate liabilities for the bank, Yes Bank chief executive officer Prashant Kumar said while speaking to reporters on Saturday.

“At this point in time, there is no reason to make any contingent provision on our balance sheet. There is no maturity date on these bonds as they are perpetual and the interest payments is also the discretion of the bank,” Kumar added.

Kumar confirmed that the lender will move the Supreme Court. “The Bombay High Court has held the ruling in abeyance for six weeks, giving us time to file an appeal in the Supreme Court. We had immediately made a request to the court to give us time to appeal in the apex court. Legal opinions point to strong grounds for a challenge,” he said.

Kumar pointed out that the order would have no impact on the bank’s core Tier-1 capital. “There is no inflow or outflow of any money or liquidity. The common equity tier-1 will come down and the bank’s AT-1 bonds holding will go up,” Kumar explained.

Kumar said the Bombay High Court has only put a question mark on the process of writing down the perpetual bonds and has not questioned the regulatory norms for carrying out such a process.

In its ruling, the Bombay High Court had said that “It appears that the administrator exceeded his powers and authority in writing off AT-1 bonds after the bank was reconstructed  on March 13, 2020”.

One of the bondholders, 63 Moons Technologies, had approached the court for their dues to be settled. The company had an exposure of Rs 300 crore to the written off AT-1 bonds of Yes Bank. The appeal was both against Yes Bank, whose officials sold off these bonds as ‘Super FDs’, and the Reserve Bank of India (RBI) which took the decision to write down part of the  bonds when the capital position of the private lender was tottering.

The bonds with a coupon rate of 9.5% were issued to protect the bank’s net worth as per Basel III norms. Though Yes Bank had issued many tranches of these bonds, only two issues were written down by the RBI through a letter dated March 14, 2020 as part of a rescue package. The bank still has Rs 280 crore worth of AT-1 bonds on its books. 

Yes Bank’s AT1 bondholders, including institutions and retail investors, have been fighting a legal battle on multiple fronts. The bank had sold the bonds as ‘Super FDs’ to fixed-deposit holders on the promise of higher returns and safety.

Among the institutional investors, Reliance Nippon Life Asset Management had the biggest exposure to the AT-1 bond. Anil Ambani’s Reliance ADAG firms had borrowed Rs 12,000 crore from Yes Bank. In April 2021, Reliance Infrastructure sold off its headquarters in Santacruz, Mumbai to Yes Bank for Rs 1,200 crore.

In September last year, SEBI imposed a penalty of Rs 2 crore on Yes Bank’s former managing director and CEO Rana Kapoor for mis-selling the bonds to hapless investors.