Yes Bank Ltd. faces ₹8,415 crore AT-1 bond restoration

Yes Bank Ltd. has been asked by Axis Trustee Services to restore ₹8,415 crore of Additional Tier-1 bonds written off during its March 2020 reconstruction, following the Supreme Court's October 15, 2026 ruling upholding the Bombay High Court decision against the write-off. The action could affect the lender's capital position, accounting and unresolved coupon claims.

What has Axis Trustee Services asked Yes Bank to do?

Axis Trustee Services has issued a three-working-day notice to Yes Bank's managing director, chief executive officer and board seeking restoration of the AT-1 bonds in the bank's books and debenture-holder records. The trustee has asked that the securities be reinstated in favour of the original bondholders or their legal successors.

The notice also seeks reversal of the write-off and cancellation actions taken under Yes Bank's March 2020 reconstruction scheme. Axis Trustee has asked the lender to reactivate the two relevant bond ISINs through National Securities Depository Ltd and Central Depository Services Ltd, restore the instruments on the BSE and NSE platforms, and resume trading in the securities.

The request follows the Supreme Court judgment that upheld the Bombay High Court's January 2023 ruling. The High Court had quashed the full write-off of the bonds, and the Supreme Court dismissed appeals filed by Yes Bank, the Reserve Bank of India and the Centre. The court had reserved its order on May 20 after hearing the parties.

Why did the Supreme Court set aside the AT-1 bond write-off?

The Supreme Court upheld the finding that Yes Bank's administrator lacked authority under the final reconstruction scheme to permanently write down the AT-1 bonds. The March 2020 rescue had reduced the value of the instruments to zero while leaving the lender's equity capital untouched.

AT-1 bonds are high-risk bank capital instruments designed to absorb losses in stressed conditions. However, the legality of the write-down depended on the authority available under the reconstruction framework and the relevant bond terms. Bondholders challenged the action before the Bombay High Court, which ruled in their favour in 2023.

The litigation continued for nearly four years after the High Court ruling. Reports on the case said the Supreme Court appeal involved 23 hearings and six changes of bench. Its October 15 decision legally revives the securities that had been removed from the bank's records during the rescue.

The judgment provides relief to institutional and retail holders whose investments had been written down. It does not, by itself, settle every operational and financial question arising from restoration, particularly the treatment of coupons that were not paid after the 2020 write-off.

How could the restoration affect Yes Bank's finances?

The restoration may have an adverse effect on Yes Bank's profit and CET-1 capital because the bank will have to reverse the earlier accounting treatment of the write-off. Reports have indicated that the lender could face a one-time impact of about ₹5,300 crore to ₹5,400 crore, while another assessment put the potential CET-1 capital-ratio effect at roughly 240 basis points.

The reported figures reflect the expected accounting consequences of reinstating an amount previously recognised through profit and loss and restoring it as AT-1 capital. Yes Bank has said it is examining the Supreme Court judgment in detail and evaluating available legal options and suitable actions.

The lender is also reported to be considering a review of the ruling. Until the bank states its accounting treatment and completes the required operational steps, the exact impact on its financial statements and regulatory capital remains subject to formal implementation.

For investors, the case brings a material liability and capital issue back into focus. For the banking sector, it also highlights the importance of clearly defined authority and process when capital instruments are written down under a reconstruction or resolution framework.

What is the status of unpaid coupons on Yes Bank's AT-1 bonds?

The status of unpaid coupons remains unresolved because restoration of the bonds does not automatically establish the timing or amount of each coupon payment. Retail bondholders have asked Axis Trustee to seek payment of overdue coupons, including the 9% coupon due on October 18 and payments skipped between 2020 and 2025.

The bondholders' association has also sought clarity on the 9.5% bond coupon due on December 23. It has asked the trustee to disclose Yes Bank's position on missed coupons, cancellation notices and correspondence since March 2020, including any reliance on contractual discretion and record dates.

Reports have noted that AT-1 coupon payments are contingent on the terms of the instruments and a bank's financial position. Sources cited in reports said Yes Bank was unlikely to pay coupons due this financial year and that the issue could be considered only after the bonds are reinstated on the balance sheet.

This creates a distinction between restoration of principal and payment of coupons. The Supreme Court decision strengthens the claim of bondholders to the reinstated instruments, but the contractual provisions governing coupon cancellation and payment still need to be applied to the revived securities.

What does the ruling mean for bondholders and market operations?

The ruling means original holders, or their legal successors, may seek restoration of their AT-1 holdings in demat form once the required records and ISINs are reactivated. Axis Trustee's notice specifically calls for coordination with NSDL and CDSL and for the bonds to return to BSE and NSE platforms.

Retail investors have also sought regulatory intervention by the RBI and Securities and Exchange Board of India. Their request cites the need for clarity on demat restoration, missed coupon payments and the treatment of the securities after six years outside normal trading and record-keeping processes.

Resuming trading would require operational action by Yes Bank, depositories and exchanges. The available information does not specify a date for this process. Any market price for the restored bonds would depend on the instruments becoming tradeable and on investors assessing their terms, coupon status and the bank's financial position.

Conclusion

The Supreme Court's decision has overturned the legal basis for Yes Bank's March 2020 write-off of ₹8,415 crore in AT-1 bonds, and Axis Trustee's notice has moved the matter into implementation. The case has direct implications for the lender's accounting, capital ratios and bondholder records, while also underscoring the legal limits on actions taken during a bank reconstruction.

The next developments to watch are Yes Bank's response to the trustee within the requested three-working-day period, its decision on available legal options, and the process for reviving the ISINs and exchange listings. Clarity on unpaid coupons, including the December 23 payment on the 9.5% bonds, remains an unresolved issue for bondholders.