Supreme Court upholds quashing of YES Bank's 2020 AT-1 bond write-down

The Supreme Court on 15 October 2026 dismissed appeals by YES Bank, the Reserve Bank of India (RBI) and the Union of India against a Bombay High Court judgment of 20 January 2023. That judgment had set aside the write-down of YES Bank's Additional Tier 1 (AT-1) bonds, issued in two tranches of Rs 3,000 crore and Rs 5,415 crore. AT-1 bonds are high-risk bonds that count towards a bank's capital and can absorb losses.

What Happened

According to the judgment, the Central Government placed YES Bank under a moratorium on 5 March 2020, and the RBI appointed an Administrator in place of its board. A draft reconstruction scheme published on 6 March 2020 said the AT-1 bonds would be written down in full. The final scheme notified on 13 March 2020 left out that clause. On 14 March 2020, the Administrator wrote down the bonds, which bondholders, including the trustee Axis Trustee Services Limited, challenged before the High Court.

The court held that under the RBI's Master Circular on Basel III capital rules, once a bank reaches the point of non-viability, the stage at which it cannot survive without support, it is the RBI that must decide on and carry out a write-down. The court held that the Administrator, who stands in for the board, could not exercise that regulatory power, and that the Central Government's deletion of the write-down clause was a conscious decision in favour of bondholders.

The court also found that, while the RBI requires AT-1 bonds to be offered only to institutional investors, YES Bank offered them directly to individual investors in violation of the Master Circular.

The court ordered that payment of the annual coupon shall remain unaffected and must be made in terms of the bonds' information memoranda. It clarified that its observations apply only to these appeals, and any pending proceeding may be decided uninfluenced by them.

What It Means

With the appeals dismissed, the Bombay High Court judgment setting aside the 2020 write-down stands, per the Supreme Court order. For bondholders, the court has directed that coupon payments follow the terms of the information memoranda. The ruling also underlines the court's view that AT-1 bonds are high-risk securities meant for institutional investors, not individuals.

Source: Supreme Court judgment