Supreme Court Hears Centre's Defense of Yes Bank AT1 Bond Write-Down
Centre defends Yes Bank AT1 bond write-down before Supreme Court
Business Standard
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The Indian government defended the Rs 8,415-crore write-down of Yes Bank's Additional Tier-1 bonds in the Supreme Court, asserting it was essential for the bank's survival and depositor protection. The court has requested further documentation and will revisit the case in July, following appeals from Yes Bank and the Reserve Bank of India against a Bombay High Court ruling that overturned the write-down.
- 01The write-down of the AT1 bonds was part of a broader reconstruction plan for Yes Bank initiated by the Reserve Bank of India in March 2020.
- 02The government argued that the AT1 bonds are designed to absorb losses, thus protecting depositors and maintaining financial stability.
- 03SBI infused approximately Rs 8,000 crore into Yes Bank with the understanding that the AT1 bonds would be written down.
- 04The Supreme Court described the complete write-down as an 'extreme' measure and requested clarity on the legal authority for such actions.
- 05Data presented to the court indicated that 1,346 retail investors had invested around Rs 679 crore in the AT1 bonds, with many being existing Yes Bank customers.
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The Central government defended the Rs 8,415-crore write-down of Yes Bank's Additional Tier-1 (AT1) bonds during a Supreme Court hearing, asserting that the decision was crucial for protecting depositors and ensuring the bank's survival amid its 2020 reconstruction. Solicitor General Tushar Mehta argued that the write-down aligned with the financial instrument's design to absorb losses when a bank becomes unviable. The Supreme Court has requested the Cabinet resolution and related documents that justified the write-down, emphasizing the need for clarity on the legal provisions authorizing such actions. The government highlighted that State Bank of India (SBI) had invested nearly Rs 8,000 crore into Yes Bank based on the understanding that the AT1 bonds would be written down. Bondholders, who include retail and institutional investors, have challenged the write-down, claiming it unfairly prioritized equity shareholders over them. The Supreme Court has set a timeline for stakeholders to submit their arguments and will revisit the case in July, following a previous ruling from the Bombay High Court that overturned the write-down.
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The outcome of this case could significantly affect Yes Bank's financial stability and the rights of bondholders, particularly impacting retail investors who invested heavily in these bonds.
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