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Yes Bank crisis: Trustee moves Bombay HC against RBI plan to write down AT-1 bonds

Yes Bank crisis: Trustee moves Bombay HC against RBI plan to write down AT-1 bonds

The crowd outside Yes Bank in Ahmedabad. (Express photo/Javed Raja/File)

AXIS Trustee Services Ltd, a debenture trustee of Yes Bank, Monday moved the Bombay High Court against Reserve Bank of India’s proposal to write-down additional tier-1 (AT1) bonds.

The debenture trustee sought relief from the High Court against the RBI proposal under the scheme of reconstruction of Yes Bank, which was put under a moratorium last Thursday. On March 5, RBI decided to supersede the board of Yes Bank and put it under moratorium for one month, and imposed a withdrawal cap of Rs 50,000 a month for all depositors.

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A debenture trustee is an entity that serves as a liaison between the company that issued debentures (Yes Bank, in this case) and the debenture holders collecting interest payments. Additional Tier 1 bonds are quasi debt instruments in the nature of perpetual bonds. Banks issued these bonds to shore up their capital base to meet Basel III capital norms.

On Friday, citing ‘global practices,’ the banking regulator made public a draft of the SBI-led restructuring package for Yes Bank, which included writing down of over Rs 8,400 crore outstanding to AT-1 bondholders.

Those holding AT-1 bonds include Nippon Mutual Fund, Templeton Mutual Fund, UTI Mutual Fund, India Bulls Housing and Max Financial.

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“The instruments qualifying as Additional Tier 1 capital, issued by the Yes Bank Ltd. under Basel III framework, shall stand written down permanently, in full, with effect from the Appointed date. This is in conformity with the extant regulations issued by Reserve Bank of India based on the Basel framework. No account-holder shall be entitled to get any compensation from the Reconstructed bank on account of the changes occurred in the Reconstructed bank by virtue of the Scheme,” the RBI said in the draft scheme.

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Axis Trustee Services mentioned the plea on Monday before a high court. Senior Counsel Janak Dwarkadas for the trustee submitted that RBI wants to write down the bonds, which reduced the liability of the bank. The RBI had called for objections and suggestions by March 9.

The Axis Trustees raised reservations and moved the High Court apprehending that the RBI scheme may be notified on Tuesday and its implication would be irreversible. The banking regulator, to the surprise of all relevant stakeholders, made the draft scheme available for the first time on March 6, Dwarkadas claimed.

The trustee claimed that Tier 1 bonds ought not to be written off at this stage and sought an interim relief from the court that the Draft ‘Yes Bank Ltd. Reconstruction Scheme, 2020’ not be implemented until the RBI hears its objections and suggestions.

The HC directed Axis Trustees to serve notice to the RBI and inform Yes Bank and the Central government about the grievances raised in the plea.

Thereafter, the petitioner wrote a letter to the respondents and said, “In view of the fact that the matter is sub-judice, you (Government and RBI) are requested not to precipitate any action to the prejudice of the AT-1 bondholders.”

A division bench of justices K K Tated and Sarang K Kotwal is likely to take up trustee’s plea for hearing on Wednesday.