Riskier than Equity - Case Study of AT1 Write-Down of Yes Bank Limited

Abstract

Owing to its deteriorating financial position, Yes Bank, one of India’s largest private banks, wrote down INR 8,415 crore worth of its Additional Tier 1 (“AT1”) Bonds in March 2020. Basel III compliant AT1 Bonds have regularly been issued by Banks in India. These bonds act as buffers for banks in times of stress and are perceived to be safer than equity shares of a bank. The write-down of Yes Bank’s AT1, however, was done without first writing-down of the common equity of the Bank, which held an inferior position to the AT 1 Bonds.

In this paper, we critically examine the legal provisions and implications relating to the write-down of AT1 Bonds in India and whether the write-down in the case of Yes Bank was in accordance with the public policy and the terms of the contract entered with the Bondholders. Two years on, with the Yes Bank case study we also attempt to examine the role and impact of RBI in creating security riskier than common equity.

Keywords: Yes Bank, Additional Tier 1, Basel III, RBI, Write down, bondholder, Banking Regulation Act, 1949, Ministry of Finance, Debentures, Economics

JEL Classification: E5