Investors were cautious as the verdict was announced, watching the market for any shift. The court’s ruling, following the Bombay High Court decision, confirms that the bonds cannot be permanently written off.
Ashvin Parekh, managing partner of Ashvin Parekh Advisory Services, said, “The instrument has found a character. It’s not an equity instrument. Certainly, it’s a debt instrument, and it cannot just be written off like that.” He added that the judgment reinforces investors’ right to receive coupon payments, though the exact mechanism will hinge on the detailed court order and the bonds’ information memorandum.
Mutual funds, the largest holders of the AT‑1s, have reportedly shifted the securities into segregated portfolios while awaiting the legal outcome. Banks that had provisioned or written off the bonds may now need to revisit their balance‑sheet treatment, as the court’s stance may require restating both principal and accrued interest. NBFCs, private equity funds and a handful of retail investors also hold the bonds, positioning them to benefit once the court’s detailed order is scrutinised.
The AT‑1s are perpetual instruments, and redemption remains at the issuer’s discretion. Parekh noted that both the principal amount and the six years of unpaid interest will ultimately have to be restored, but questions linger over whether the settlement will be a lump‑sum or phased. Practical hurdles, especially for mutual funds, include identifying investors who held units when the bonds were written down in 2020 and determining how any restoration of value should be distributed.
The full Supreme Court judgment is expected to arrive soon, and market participants are preparing for a clearer framework that could unlock coupon payments and reshape accounting for banks and other holders.