Yes Bank CEO Says Paying Interest On AT1 Bonds Is At Lender's Discretion
Yes Bank has strong grounds to appeal Bombay High Court judgment on AT1 bonds, says CEO.
The Bombay High Court's order on Yes Bank Ltd.'s additional tier-1 bonds issue will not have any impact on the lender's capital structure, said the lender's Managing Director and Chief Executive Officer Prashant Kumar.
"There is no inflow or outflow of any money or liquidity. It will be on the change in CET (common equity tier-1) and AT-1. There would not be any impact on the tier-1 capital," Kumar told reporters in a conference call after announcing Yes Bank's December quarter results.
On Friday, the Bombay High Court quashed Yes Bank's March 2020 decision to write off Rs 8,415 crore worth AT-1 bonds. While the court did not question the merits of such a write-off, it said that the decision was taken a day after the government notified the Yes Bank reconstruction scheme on March 13, 2020.
"It appears that administrator exceeded his powers and authority in writing off AT-1 bonds after the bank was reconstructed on March 13, 2020," Acting Chief Justice SM Modak said in his order.
The judgment came against a petition filed by a clutch of bondholders who were impacted by the decision to write off the AT-1 bonds.
In March 2020, after Yes Bank's financial position had considerably deteriorated, the Reserve Bank of India had stepped in to supersede the bank's board. It appointed Kumar as the administrator of the bank till a reconstruction plan was finalised. He was later appointed MD & CEO.
According to the bank, in the worst-case scenario if the Bombay High Court's judgment is upheld after challenge, the AT1 bonds would only bring down the common equity Tier-1 capital; however, the overall capital adequacy ratio remains the same.
"Fundamentally, if we talk of accounting... your CET would come down and your AT1 would be there. Together these would remain the same," he said.
The bank has also not made any additional provisioning for this liability, since it believes it has strong footing to appeal the judgment at the Supreme Court.
"In terms of the probability, we have very strong legal opinions in our favour. At this point in time there is no reason to make any contingent provisions on our balance sheet," Kumar said.
When asked whether the interest component on the AT1 bonds could impact the balance sheet, Kumar said that interest payments would be within the bank's discretion.
"On the perpetual bond, it is the discretion of the bank to pay interest or not," Kumar said. "At this point in time, I would not like to add anything further."