The Bombay High Court on 20th January quashed the write-off of Additional Tier-1 (AT1) bonds worth Rs 8,400 crore issued by Yes Bank Ltd, bringing relief to investors.
- Yes Bank was placed under a moratorium by the Reserve Bank of India in March 2020 and a new management and board were appointed as part of a rescue plan worked out by the RBI.
- The RBI allowed a write-off of Rs 8,400 crore on AT1 bonds issued by Yes Bank after it was rescued by the State Bank of India.
About AT-1 bonds
- AT-1 bonds, also known as Additional Tier 1 bonds, are unsecured perpetual bonds issued by banks to shore up their capital base to meet Basel III requirements. These bonds have perpetual tenor. In other words, these bonds, issued by banks, have no maturity date.
- Basel III norms were a set of rules that banking regulators around the world came up with after the global financial crisis in 2008, to strengthen bank balance sheets.
- RBI is the regulator for these bonds. AT1 bonds are like any other bonds issued by banks and companies, which pay a fixed rate of interest at regular interval.
- Usually, these bonds pay a slightly higher rate of interest compared to similar, non-perpetual bonds. However, the issuing bank has no obligation to pay back the principal to investors.
- AT1 bonds are subordinate to all other debt and only senior to common equity. Mutual funds (MFs) were among the largest investors in perpetual debt instruments.
- These bonds are listed and traded on the exchanges. So if an AT1 bond holder needs money, he can sell it in the market.
- The contract terms for AT1 bonds mention clearly that the value of these bonds can be completely written off if the bank’s capital ratios fall below certain regulatory thresholds.
