Kotak halts investments in two funds
Kotak Mutual Fund has halted new investments in two of its schemes, the Kotak Medium Term Fund and the Kotak Credit Risk Fund, following the Supreme Court’s October 15 decision that Yes Bank’s ₹8,415 crore write-off of Additional Tier-1 (AT1) bonds in March 2020 was unlawful. The restriction applies to lump-sum contributions, internal transfers, and fresh SIP/STP registrations, though existing subscriptions finalized before October 15 will proceed at their applicable NAV.
The fund house justified the suspension by citing the court’s ruling, emphasizing its commitment to protecting investors. The Supreme Court’s judgment reversed the bonds’ zero valuation after Yes Bank’s restructuring, reinstating their legal standing. Kotak is now assessing the implications and will decide on further actions.
AT1 bonds serve as hybrid financial tools that help banks meet regulatory capital standards. While they often deliver higher returns, they can be written off or converted into equity during financial instability. Yes Bank’s write-off occurred as part of a government-supported recovery effort, but bondholders contested the move, arguing the instruments should not have been canceled. The Bombay High Court had already invalidated the write-off in January 2023, and the Supreme Court’s October 15 ruling confirmed that decision.
The ruling could expose Yes Bank to additional financial liabilities. The verdict also creates regulatory uncertainty around the allocation of losses during future bank rescues.
