Yes Bank AT-1 bonds: SC reserves order on ₹8,415 cr

What the Supreme Court has done

The Supreme Court has concluded hearings in the case concerning Yes Bank’s write-down of Additional Tier-1 (AT-1) bonds and has reserved its order for judgment. The matter relates to the bank’s 2020 decision to write off AT-1 bonds of about ₹8,415 crore. With the order reserved, the final verdict is now awaited.

Yes Bank has told investors that if the Supreme Court’s final ruling results in any financial liability, the impact will be recognised in the relevant future reporting period. The bank’s disclosure focuses on the accounting treatment, without providing an estimate of any possible liability.

The dispute: the 2020 AT-1 write-off

The case stems from the write-off of AT-1 bonds as part of Yes Bank’s bailout and reconstruction process in March 2020. AT-1 instruments are perpetual bonds issued by banks to bolster their capital base. These bonds are generally considered riskier than traditional bonds and typically offer higher interest rates.

Institutional investors held these AT-1 instruments, and Axis Trustee Services has been involved on behalf of institutional AT-1 bondholders. In court, the trustee argued that the administrator’s 2020 decision to write down the AT-1 bonds could not have been done legally.

What the Bombay High Court held in 2023

A key turning point came with a 2023 Bombay High Court judgment that struck down the write-off of AT-1 bonds worth about ₹8,400 crore. The High Court’s January 20, 2023 order quashed the decision of the Yes Bank administrator to write off the AT-1 bonds.

According to reports from the case record, the High Court noted that the administrator did not have the authority to take such a decision. The High Court also said that the final reconstruction scheme issued by the Reserve Bank of India (RBI) did not “engulf within its fold” the writing down or writing off of the AT-1 bonds.

Who appealed and why the matter reached the Supreme Court

The Supreme Court has been hearing appeals filed by Yes Bank and the RBI against the Bombay High Court judgment. The Finance Ministry also moved the Supreme Court against the High Court’s January order that quashed the RBI’s and Yes Bank’s decision to write off AT-1 bonds worth ₹8,415 crore.

The Finance Ministry sought setting aside of the High Court judgment on the ground that its implementation would result in “deleterious consequences” for the banking system and the future resolution of any bank facing similar levels of stress. A bench led by then Chief Justice D Y Chandrachud admitted the government’s appeal and tagged it along with similar appeals filed by the RBI and Yes Bank.

Hearings, stays, and bench movements

The Supreme Court extended the stay on the operation of the Bombay High Court order that had quashed the write-off. Reports also note that the High Court, while pronouncing its decision on January 20, had stayed its order for six weeks, and the Supreme Court later extended that stay until further orders.

In earlier proceedings, the Supreme Court had issued notices to Axis Trustee Services Ltd on a batch of appeals filed by the RBI and others challenging the High Court order. A bench headed by then Chief Justice D Y Chandrachud had issued notices on March 3, 2023 on multiple petitions filed by the RBI and others against the High Court judgment.

Separately, in another listing, a bench comprising Chief Justice Sanjiv Khanna and Justices Sanjay Kumar and K V Viswanathan said it would not hear the four pleas filed against the High Court’s decision and referred the matter to a bench headed by Justice A S Oka.

Final arguments and the order being reserved

Final arguments before the Supreme Court concluded on February 26, after which the court reserved its order for judgment. The case therefore remains pending for the final verdict.

Yes Bank’s latest communication on the matter is focused on disclosure: it said any financial liability arising from the Supreme Court’s final verdict would be recognised in the relevant future reporting period.

Why AT-1 bond legality matters for bank resolutions

The Supreme Court is examining whether the 2020 write-off of the AT-1 bonds was legally valid. Reports have described the ruling as one that could reshape how future bank resolutions are structured, especially when such resolutions include capital instruments like AT-1 bonds.

The Finance Ministry’s submission highlighted systemic considerations, warning of “deleterious consequences” if the High Court order were implemented. This framing places the dispute beyond a single bank and into the broader context of how stressed-bank resolutions are executed and challenged.

Key facts at a glance

Timeline of major court steps

Market and investor implications (based on what is on record)

For investors in AT-1 instruments, the case is central because it tests the legal authority and process behind writing down such bonds during a bank’s resolution. The trustee representing institutional bondholders has argued that the write-down could not be done legally, while the appeals by the RBI, Yes Bank, and the Finance Ministry seek to overturn the High Court’s decision.

For the banking system, the government’s stated concern is the potential impact on future resolutions of banks facing similar stress. The Supreme Court’s verdict is expected to clarify how reconstruction schemes, administrator powers, and bond terms interact in such events.

What to watch next

The next milestone is the Supreme Court’s final judgment, since the order has been reserved after completion of arguments. Yes Bank has indicated that any financial liability arising from the verdict will be accounted for in a future reporting period when it crystallises.