YES Bank shares in focus with SC likely to hear appeal in AT1 bond matter

If top court rules in favour of bondholders, Yes Bank shares could see a selloff as its capital base gets eroded, impeding its growth prospects; other banks, especially PSBs, may be impacted too

Shares of Yes Bank are likely to come under focus as the Supreme Court (SC) is expected to take up the appeal in the Additional Tier 1 (AT1) bond matter soon.

If the apex court rules in favour of AT1 bondholders, Yes Bank shares could see a selloff as the verdict could erode its capital base and impede its growth prospects, say analysts. It could also impact the capital raising prospects of other banks, particularly public sector lenders, who are large issuers of such bonds.

Shares of Yes Bank closed at about Rs 15 on Monday on the BSE. The stock has come off by as much as 18 per cent this month, following the end of a three-year lock-in period on its shares and a likely judgement by the SC in the AT1 matter. On a year-to-date basis, shares of Yes Bank–which has a retail investor base of 4.7 million—are down 27 per cent.

On January 20, the Bombay High Court (HC) turned down the decision to write off AT1 bonds worth over Rs 8,400 crore. Following which its shares had tanked close to 10 per cent. Later the HC stayed the judgement for six weeks. Aggrieved by the Bombay HC’s judgement, Yes Bank and the Reserve Bank of India (RBI) had filed special leave petitions before the SC. On March 03, 2023, the apex court had extended the stay granted by the Bombay HC.

The SC is taking up the Yes Bank AT1 matter at a time when the Swiss banking regulator ordered writing down of $17 billion worth of AT1 bonds as a reconstruction exercise of Credit Suisse ahead of its merger with UBS.

AT1 bonds are part of Tier 1 capital for a bank, along with equity shares and reserve & surplus. Such bonds –also called perpetual bonds-offer a higher coupon rate to compensate for the extra risk that the bond holder takes.

Yes Bank reconstruction scheme in 2020 involved infusion of Rs 10,000 crore equity capital by State Bank of India (SBI) and seven other financial institutions along with writing down of Rs 8,415 crore of its AT1 bonds.