Mallika Dureja
Listen to the post:
Friday, the Bombay High Court reversed Yes Bank Ltd’s write-off of Additional Tier-1 (AT1) bonds worth Rs 8,400 crore, delivering comfort to investors.
What are AT1 bonds?
AT1 bonds are unsecured perpetual bonds without a maturity date. These bank-issued bonds have no maturity date. They have a call option, which banks can utilise to repurchase these bonds from investors. Typically, banks utilise these bonds to strengthen their core or tier-1 capital.
AT1 bonds are subordinate to all other forms of debt and subordinate to common equity exclusively. Mutual funds (MFs) ranked among the largest holders of perpetual debt securities.
63Moons Press Release on Yes Bank AT1 bond case pic.twitter.com/OFJsHfPJ0P
— Yatin Mota (@YatinMota) January 20, 2023
What led to the write-off?
As part of a rescue plan devised by the Reserve Bank of India, Yes Bank, which was on the verge of failure, was placed under a moratorium in March 2020 and a new management and board were installed. After the State Bank of India rescued Yes Bank, the central bank authorised a write-off of Rs 8,400 crore on AT1 bonds issued by Yes Bank.
Also read: Chris Hipkins is expected to become the next Prime Minister
What did Yes Bank do?
An investigation by Sebi revealed that the bank enabled the sale of AT1 bonds by institutional investors to individual investors. It was determined that during the sale of AT1 bonds, individual investors were not advised of all the risks associated with their subscription. According to the Sebi inquiry, Yes Bank misrepresented these bonds to investors as ‘Super FD’ and ‘as secure as FD’
SEBI also discovered that Yes Bank’s private wealth management team irresponsibly sold AT1 bonds to individual investors in response to pressure from the bank’s managing director to downsell the bonds.
