The Supreme Court’s decision to uphold the quashing of YES Bank’s 2020 write-off could restore value for mutual funds, institutions and 1,346 retail investors, while fund houses move to protect existing unitholders from dilution.
Nearly six years after YES Bank’s AT1 bonds were written down to zero, the Supreme Court’s ruling has reopened the prospect of recovery for mutual funds, institutions and retail investors who were left waiting through one of India’s most closely watched banking disputes.
The court upheld the Bombay High Court’s 2023 decision that struck down the administrator’s write-off of ₹8,415 crore of additional tier-1 bonds during YES Bank’s 2020 reconstruction. According to reporting by The Economic Times, Business Standard, Moneycontrol and Financial Express, the judges concluded that the administrator did not have the authority to take that step once the reconstruction framework had come into force.
The judgment has immediate consequences for asset managers that had already marked the securities to zero. The Hindu BusinessLine reported that Nippon India Mutual Fund and Kotak Mahindra Mutual Fund have temporarily halted fresh subscriptions in certain debt schemes holding the bonds, so that any eventual recovery benefits only existing investors. Kotak Asset Management has since said the bonds held by two of its debt funds were restored after the ruling, according to Moneycontrol, while Franklin Templeton has long used a segregated portfolio structure that rings-fenced the exposure from March 2020.
The differences in approach matter because they determine who gets the money if recovery is eventually realised. Franklin Templeton said any proceeds would be distributed to the unitholders in the segregated portfolios in proportion to their holdings, while wealth adviser Aakanksha Shukla told The Hindu BusinessLine that investors who entered the schemes after the write-down should not share in the gains. That concern explains why some fund houses are moving quickly to prevent fresh money from accidentally benefiting from an upside that belongs to earlier holders.
The ruling also reaches well beyond mutual funds. The Hindu BusinessLine said Sammaan Capital expects to recover about ₹662 crore and 63 Moons Technologies nearly ₹300 crore. It also reported that about 1,346 retail investors held around ₹679 crore of the bonds, including many YES Bank customers such as retired employees, senior citizens and homemakers who had sought the securities for their relatively high coupons of 9% to 9.5% and a minimum investment of ₹1 crore. For them, and for the wider market, the decision is likely to be read as a rare reversal in a case that had long looked closed.
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