Yes Bank is preparing to seek a review of the Supreme Court ruling that reinstated Rs 8,415 crore of its written-off Additional Tier 1 bonds. More immediately, it has indicated it will not pay the 9% coupon due on October 18, three days after the court order. The bank's position rests on a clause in the bond documentation granting it discretion over coupon payments, arguing the matter can only be addressed once the bonds are formally restored on its balance sheet.
Bondholders, through their trustee, are demanding immediate payment of the overdue coupon and all coupons skipped since the 2020 write-off. They cite the Supreme Court's specific direction that coupon payments "shall remain unaffected" by the appeals outcome. This conflict moves the dispute from a question of write-off validity to one of payment enforcement, testing whether the high yields on AT1 bonds—compensation for their loss-absorption feature—also cover the risk of non-payment while the bank operates.
The precedent reaches beyond Yes Bank to the Rs 1.02 lakh crore of AT1 bonds outstanding in the Indian banking system, most issued by public-sector banks. If contractual discretion can override a court order for payment, the risk premium on all bank capital instruments must be repriced. Rating agencies estimate a coupon payment liability of around Rs 6,200 crore for Yes Bank, which could push its core equity tier-1 ratio down to about 10%.
Who bears the resolution cost
The immediate burden falls on retail and institutional AT1 holders, who must now seek regulatory intervention or further litigation. For the RBI and the government, the standoff complicates the bank's reconstruction and forces a clarification on where regulatory power ends and contractual terms begin. The outcome will define the loss hierarchy in future bank rescues and determine whether AT1 bonds remain a viable capital tool for lenders, or become too costly for investors to hold.