The Yes Bank AT1 bond case and lessons for all investors

What happened

Yes Bank wrote off its entire Additional Tier 1 bond amount of Rs.8,415 crore. Investors challenged this in the Bombay high court, which overturned the write-off, and the Supreme Court upheld that order. The pending coupon, meaning interest payment, is now the issue.

Confirmed

Global impact / market context

This case shows that AT1 bonds, which are bank bonds that can be written off to absorb losses, carry risks individual investors may not grasp. It also led to rules limiting these bonds to large institutional buyers, reducing access for ordinary investors seeking higher returns.

Analyst inference

After the March 2020 write-off, Sebi required only qualified institutional buyers, meaning large regulated investors, to buy AT1 instruments. Minimum allotment and trading lot sizes were set at Rs.1 crore, effectively pushing individual investors out of the AT1 market.

Analyst inference

What to watch

1. The Supreme Court upheld the Bombay high court order reversing Yes Bank's AT1 bond write-off. The remaining dispute concerns the pending coupon, which means unpaid interest on those bonds. Confirmed
2. Sebi's October 2020 circular proposed restricting AT1 issuance to qualified institutional buyers, with minimum allotment and trading lot size of Rs.1 crore each, effectively excluding individual investors from this market. Proposed
3. If the pending coupon dispute is resolved against bondholders, banks may face higher borrowing costs on AT1 debt, while investors could demand clearer risk disclosures before buying instruments that can be written off. Analyst inference

Evidence

• Original source link unavailable