Yes Bank petitions Supreme Court to review order restoring 84.2 billion rupees in AT1 bonds

What the court decided and why that matters

In an Oct. 15 judgment, the Supreme Court overturned the permanent write down of certain Additional Tier 1 bonds, concluding the administrator put in place during Yes Bank's government backed rescue did not have the authority to cancel them. Those AT1 securities, designed to absorb losses when a bank is in trouble, were erased during a 2020 overhaul supervised by the Reserve Bank of India. Yes Bank has now asked the court to review that ruling.

How reinstated bonds hit capital and earnings

Restoring the 84.2 billion rupees of bonds would also restore the liability and the interest attached to it, which the bank says would pressure both capital and profits. According to management, the effect would be a reduction of around 2.5 percentage points in a key capital ratio. On a what if basis, the bank said the September quarter would have shown a 52.2 billion rupee loss instead of 10.8 billion rupees of net income.

The broader test and what to watch

The dispute now serves as a test case for the mechanisms used to saddle holders of risky bank instruments with losses during bailouts. Yes Bank says it has options to manage capital and that its growth plans are not being curtailed by the judgment. S&P Global assesses that the institution's credit standing should be able to absorb the shock, but profits would come under strain because the bonds carry relatively steep interest. Japan's Sumitomo Mitsui Banking Corp. holds 24.9% of the institution.

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The bottom line for your portfolio

If the bonds stay reinstated, earnings drag from interest and a thinner capital buffer are the immediate effects to model. The bank's stance on growth and S&P's view on resilience point to stability, but the court's final word is the real catalyst to track.

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