RBI may appeal HC order on Yes Bank AT-1 bonds

The court did not consider whether the writing off of the AT-1 bonds was necessary but only looked at the decision-making process.
The court did not consider whether the writing off of the AT-1 bonds was necessary but only looked at the decision-making process.


  • Bombay high court ruling could have a huge sectoral impact.

The Reserve Bank of India will likely appeal the Bombay high court ruling that quashed the regulator and Yes Bank administrator’s decision to write off additional tier-I (AT-I) bonds to save the lender from collapsing, according to two officials familiar with the matter.

This high court on Friday granted six weeks to Yes Bank to file its appeal against the order in the Supreme Court.

“RBI believes the writ petition is not maintainable and the order could have a huge sectoral impact. The central bank also believes that the administrator had all the powers of the board to write off the bonds and, therefore, the court’s argument is not valid," said one of the two officials aware of the matter, requesting anonymity.

RBI approved the Yes Bank administrator’s March 2020 decision to write off the AT-I bonds as part of a restructuring plan to save bank depositors from losing their savings.

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The decision was then challenged in court by a group of aggrieved bondholders.

AT-I bonds are unsecured bonds with no maturity date and are used by banks to shore up their capital base and comply with Basel III norms.

An email sent to a spokesperson for RBI went unanswered.

The high court, in its order, said that the administrator appointed by the RBI exceeded his powers to write off the AT-I bonds as the decision was taken after the final reconstitution scheme was notified on 13 March 2020.

It said that the scheme came into force on 13 March 2020, and the bank stood reconstructed on the same day.

The court ruled that AT-I bonds could only be written down before the bank’s reconstruction. It also pointed out that the government-approved reconstruction scheme for Yes Bank did not include a clause for writing down these bonds.

However, the court did not consider whether the writing off of the AT-1 bonds was necessary but only looked at the decision-making process.

Yes Bank argued that Section 36 AC of the RBI Act allows the administrator to exercise the board’s powers until a new board takes charge.

“The court order is based on two grounds—the date of reconstruction and the administrator did not have the power after the scheme was notified. As far as the first ground is concerned, it is incorrect to say that the date of reconstruction could be the same as the date of notification because it does not take into account the period of implementation of the reconstruction. The second reason is contrary to the RBI Act that merely because the scheme was notified, the administrator cannot exercise any powers," said Rohan Dakshini, a lawyer representing Yes Bank and a partner at law firm Rashmikant and Partners.

“The court’s observation on the deletion of the provision of the write-down from the final scheme makes no difference to the exercise by the bank of its contractual rights," he added.

Following the Bombay high court ruling, bondholders of Lakshmi Vilas Bank also plan to seek an urgent hearing in the Madras high court against the RBI’s decision to write off tier-II bonds worth 320 crore, as the government’s approved merger scheme also does not mention write-downs for these bonds.

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