Home / Money / Personal Finance /  How a group of ordinary investors won an unlikely battle

For Bengaluru-based Saurabh (he declined to give his last name) and Chandigarh-based Nimish Goyal, the Bombay High Court judgment in the Yes Bank AT1 bonds case was the outcome of a long struggle. Around a third of Saurabh’s parents’ retirement kitty had been invested in these bonds and it was wiped out in March 2020 when the bank collapsed.

Noida-based Ashok Kumar Tyagi, 65, had bought the AT1 bonds from his retirement funds . Tyagi says he invested his entire savings in the bonds—an amount exceeding 1 crore. His daughter was unwell and he needed money for her treatment. When the AT1 bonds were written off, the family no longer had access to the money. She died in 2022.

The write-off of the bonds dealt a severe blow to Gurugram-based Amit Awasthi as well. His father had in 2017 invested around 1.3 crore—his entire life savings—in the bonds. “I hid the news from my father for a year. I thought he would get a heart attack. When the interest did not get credited to his account, he asked me again. I played down the news and told him we’d get the money back. Instead, I transferred him money from my account and supported him for three years," Amit said.

The 700-odd retail investors in Yes Bank AT1 bonds held only a small fraction of the roughly 8,400 crore issuance. Many of them were mis-sold these products by Yes Bank relationship managers on the promise of high interest.

When Yes Bank failed, the Reserve Bank of India (RBI) came up with a rescue plan which envisaged a takeover by SBI. However, Yes Bank’s implementation of this plan saw the AT1 bonds being written off altogether. Since its equity investors were not affected (equity being the first level of risk-absorption in a bankruptcy), AT1 bond investors saw the write-off as being manifestly unfair.

Not all experts, however, agree on this. “AT1 bonds are by design meant to be written off when certain capital ratios are breached. Writing off equity is not a condition that is precedent for writing off these bonds. So I don’t think this decision will stand. However, ideally they should have written off equity also, on moral grounds," said Deepak Shenoy, founder, Capital Mind.

The Bombay High Court did not address this question. It rejected the write-off on a technicality—it was approved by the administrator appointed to Yes Bank after his powers ceased to exist.

On 12 April 2021, Sebi levied a penalty of 25 crore on Yes Bank and penalties ranging from 50 lakh to 1 crore on some of its employees, a decision that was stayed by the Securities Appellate Tribunal.

Meanwhile, individuals owning these AT1 bonds decided to fight back. They formed an association of around 400 aggrieved persons and collected funds to challenge the write-down in the courts. They hired Srijan Sinha, a lawyer who had a history of fighting financial cases. At the time, Sinha was representing clients of Karvy Wealth Management who were sold NCDs by various builders who defaulted.

The Yes Bank AT1 case was an expensive proposition and happened during the covid pandemic when meeting people was difficult. The AT1 investors found each other over social media and formed a registered association.

Fighting the case cost the association approximately 25 lakh over the years and this excludes the time and effort that Saurabh and Nimish put into organizing the 400 investors scattered around the country who had collectively invested around 160 crore in the AT1 bonds. Each of them contributed funds for the case in proportion to the bonds that he or she held.

“I expect RBI and Yes Bank will appeal in the Supreme Court. But, for us, this is a victory," said Nimish. A stock exchange filing by Yes Bank on 20 January confirmed that it will be appealing the decision in the Supreme Court.

The bulk of the roughly 8,400 crore worth AT1 bonds are owned by institutions including mutual funds (MFs) which ultimately represent retail investors. These MFs, which collectively held around 2,848 crore of AT1 bonds, are likely to see a ‘write-back’ or growth in net asset value if the court judgment is upheld.

To get a full list of funds which may see write backs, click here (https://bit.ly/3GWllVr).


Neil Borate

Neil heads the personal finance team at Mint. A former colleague called them 'money nerds' and that's what they are. They cover topics like mutual funds, taxation and retirement, all to improve your chances of building wealth. Neil graduated with a degree in law and economics. He passed the CFA Level I exam and began his writing career at Value Research, a mutual fund research firm in 2016. He joined the personal finance team Mint in 2019. Everyday, the Mint Money Team tackles personal finance questions such as where to invest and where to borrow, through articles, charts and reader queries. They also have a daily podcast - 'Why Not Mint Money' and an annual ranking of mutual funds - the Mint 20.
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