Yes Bank unlikely to pay AT1 bond coupons despite bond holders demand, sources say

Yes Bank has not paid the annual coupon due on October 18, according to retail investors. The bank is also preparing to seek a review of the Supreme Court ruling that overturned its AT1 bond write-off. This leaves investors seeking clarity while the bank weighs its obligations and financial position.

The key mechanism is the bond documentation. Sources told Reuters that it gives Yes Bank discretion over coupon payments. They said the coupon issue can be considered only after the AT1 bonds are reinstated on the bank’s balance sheet. Investors, however, point to the Supreme Court order saying annual coupons remain unaffected by the appeals.

Yes Bank still has a debit balance of 52.79 billion rupees in its profit and loss account. Its fiscal 2020 and 2021 losses are expected to be fully offset only by fiscal 2028. That continuing deficit could weigh on the bank’s decision, although the article does not report a final decision on future coupons.

AT1, or Additional Tier 1, bonds are securities banks issue as a form of regulatory capital. They usually offer investors periodic coupons, but they are riskier than ordinary bonds. Their terms can allow the issuer to cancel coupons, and they can expose investors to losses when the bank’s financial position deteriorates.

That cancellation feature is central to the Yes Bank dispute. Sources told Reuters that the bond documentation gives the bank discretion over coupon payments. Investors argue that the Supreme Court order says annual coupons remain unaffected by the appeals and must be paid under the Information Memoranda. The competing interpretations have left the October 18 payment unresolved.

The article also reports that Yes Bank has a 52.79 billion rupee debit balance in its profit and loss account. Losses from fiscal 2020 and 2021 may not be fully offset until fiscal 2028. Those figures help explain why coupon payments remain contentious, although the article does not state that every AT1 coupon has been permanently cancelled.

The write-off covered 84 billion rupees of Yes Bank’s AT1 bonds, equivalent to $886 million in the article. It meant investors lost the value of securities they had bought, while the bank and regulators defended the action. The Supreme Court’s decision to uphold the earlier challenge therefore carries major financial consequences.

The amount is especially significant when compared with Yes Bank’s latest annual report. The lender reported a debit balance of 52.79 billion rupees in its profit and loss account. The AT1 write-off was therefore about 31 billion rupees larger than that reported debit balance, although the two figures measure different things and cannot be treated as identical financial items.

For investors, reinstatement could restore the bonds to the bank’s balance sheet, but it does not automatically settle the unpaid coupons. Sources said coupon payments can be considered only after reinstatement. The bank is preparing to seek a review, so the final financial effect remains unresolved in the article.

Yes Bank wrote off 84 billion rupees of AT1 bonds six years ago. The 2023 Bombay High Court ruling set that action aside, and the Supreme Court upheld the decision last week. The ruling was a setback for Yes Bank and the regulators that had defended the write-off.

The immediate change is that the write-off no longer stands under the court ruling. Sources told Reuters that the bonds must first be reinstated on Yes Bank’s balance sheet before the coupon issue can be considered. Bondholders also cited the Supreme Court order, which states that annual coupons remain unaffected by the appeals and must be paid according to the Information Memoranda.

The ruling has not produced an immediate coupon payment. Investors said they had not received the payment due on October 18 and asked Axis Trustee Services to intervene. Yes Bank is preparing to seek a review, while sources say the bond documents give the bank discretion over coupons. The article therefore describes an ongoing dispute rather than a completed settlement.

Bondholders are asking Axis Trustee Services Ltd to intervene because the coupon due on October 18 had not reached retail investors three days after the Supreme Court ruling. They want a clear statement about whether Yes Bank paid, cancelled, or still owes the coupon. Their letter was reviewed by Reuters.

A debenture trustee acts as an intermediary for bondholders. It monitors the issuer’s obligations, communicates with investors, and can press the issuer for information or compliance. In this case, investors called on Axis Trustee to obtain immediate written confirmation from Yes Bank and address the payment uncertainty.

The request matters because the parties read the court order differently. Investors cited language requiring annual coupons to be paid under the Information Memoranda. Sources, however, said the bond documents give Yes Bank discretion over coupons and that payments can be considered only after reinstatement. The trustee is therefore being asked to clarify the position while the legal and financial dispute continues.

Reinstatement would put the AT1 bonds back on Yes Bank’s balance sheet, according to sources cited by Reuters. That would change the position created by the write-off and could restore investors’ claims to the securities. It would not necessarily guarantee immediate coupon payments, because the bond documents reportedly give the bank discretion over them.

The immediate dispute would then concern whether the October 18 coupon remains payable. Investors rely on the Supreme Court order, which says annual coupons remain unaffected by the appeals. Sources counter that coupons can be considered only after reinstatement. If the bank still withholds them, investors could retain the bonds while receiving no current income, subject to the final interpretation of the documents and court process.

For Yes Bank, reinstatement could increase pressure on its reported financial position, but the article gives no quantified capital impact. The bank has a 52.79 billion rupee debit balance, and earlier losses may not be fully offset until fiscal 2028. The bank is preparing to seek a review, so the outcome remains unsettled.

Banks issue AT1 bonds to raise a layer of capital that can absorb losses. Unlike ordinary debt, these securities are designed to provide support when a bank’s financial condition weakens. This structure can help protect depositors and maintain confidence because losses are directed toward risk-bearing investors before depositors are affected.

The mechanism is visible in the Yes Bank dispute. The bank wrote off 84 billion rupees of AT1 bonds, while regulators defended the move. AT1 terms can also allow coupon payments to be cancelled or deferred. Sources said Yes Bank’s bond documents give it discretion over coupons, showing that investors may not receive regular interest in every circumstance.

These protections come with a cost for investors: AT1 bonds carry greater risk than ordinary bonds. The Supreme Court ruling set aside Yes Bank’s write-off, creating a dispute over reinstatement and coupons. The article does not describe the broader regulatory framework, but it shows the central trade-off: AT1 securities support bank resilience while exposing investors to losses and uncertain income.