After the Bombay High Court recently quashed a decision taken by the Yes Bank administrator on March 14, 2020, to write off Additional Tier 1 (AT-1) bonds, sources privy to the developments told CNBC-TV18 that there is no provision to convert the bond into equity.
Yes Bank had written off AT-1 bonds worth Rs 8,415 crore as part of the bailout in March 2020.
According to multiple people familiar with the development, various proposals to consider the conversion of this nature in the past have not found favour and the Bombay HC ruling does not deal with conversion into equity.
Also, sources in the know told CNBC-TV18 that Bombay HC has confined itself to determining whether the decision-making process has been adhered to.
Recently, the court in its judgment said the final reconstruction scheme of Yes Bank issued by the Reserve Bank of India did not cover writing down/off the AT-1 bonds. "The final scheme sanctioned by the Central government did not contain the clause or provision for writing down AT-1 bonds," the court said.
The court further held that when RBI prepared the draft scheme for reconstitution of the bank, it had invited suggestions and objections and it appears the petitioners had raised objections to the writing down of AT-1 bonds and even suggested their conversion into shares.
"It appears that upon consideration of the objections the Reserve Bank made modification in the draft scheme. It deleted the clause of writing down of AT-1 bonds," the HC said.
"The Administrator could not have taken such a policy decision of writing down the AT-1 bonds. Nor the RBI had authorized him to do so. The Final Reconstruction Scheme also did not authorise administrator to write off the AT-1 bonds. It appears the Administrator exceeded his powers and authority in writing off AT-1 bonds after the bank was reconstructed on March 13, 2020," the HC said.
The high court, in its order, noted that the court would not dwell on the aspect of whether writing off the AT-1 bonds was necessary since the matter was fiscal in nature.
"We would not enter into a debate as to whether the AT-1 bonds could have been converted into the shares and or whether they could have been proportionately written down. The court would not possess the necessary expertise of the same," the judgment said.
"This court would only consider whether the decision-making process has been adhered to and that it was within the competence of the Administrator to write down the AT-1 bonds in the facts and circumstances of the present case," it added.
The court noted that in May 2012, the RBI issued a master circular providing the procedure to be adopted in writing down the AT-1 bonds and/or the manner in which the same are to be dealt with. The bench, however, stayed its order for a period of six weeks.
The petitions had also sought directions against National Securities Depositories Limited and Central Depository Services to take such steps to reverse the effect of any accounting, entries, noting, write-offs, cancellations, or any other steps that may have been undertaken.