Govt defends ₹8,415 crore Yes Bank AT1 bond write down before Supreme Court
New Delhi, May 20, 2026
Argues in SC that the decision was needed for the bank's survival
The Centre on Wednesday defended the ₹8,415 crore writedown of Yes Bank’s Additional Tier-1 (AT1) bonds in the Supreme Court (SC), arguing that the decision was necessary to protect depositors and ensure the lender’s survival during the 2020 reconstruction exercise.
Appearing for the Centre, Solicitor General Tushar Mehta placed before the top court the Cabinet Resolution linked to the March 2020 decision that paved the way for the writedown of the AT1 bonds.
During the hearing, the apex court pulled up the Union finance ministry and asked for a copy of the Cabinet Resolution, minutes of the meeting in which the decision to write down the AT1 bonds was taken, along with other related documents.
The Centre along with the Reserve Bank of India (RBI) and State Bank of India (SBI) argued that the writedown of the bonds was consistent with the design of the financial instrument, which is meant to absorb losses when a bank becomes financially unviable.
The central government maintained that the framework was intended to shield depositors and preserve financial stability.
Each AT1 bond carries a face value of ₹10 lakh. Such instruments, however, are popular among investors despite the risk of writedown during periods of financial distress, as they offer returns exceeding 9 per cent, Mehta told the court.
Highlighting the broader ramifications of the dispute, the Centre submitted that banks have collectively issued over ₹1 trillion worth of AT1 bonds, and warned that the lenders could face severe risks if writedowns are disallowed after breach of RBI-prescribed capital thresholds.
The government further stated that SBI had infused close to ₹8,000 crore into Yes Bank during the reconstruction process with the understanding that the AT1 bonds would be written down.
"RBI senior officials meet, they decide what to do, who to invite, who will infuse the fund, who will ensure that the bank is saved, how the bank will be saved, what are the considerations, etc. Ultimately, my Lord, SBI, if I may say so, was persuaded that you, being the largest bank, you invest... approximately ₹8,000 crore," Mehta argued.
"They (SBI) understood the RBI circular that we are dealing with a bond series, which can be written down, but otherwise there would be no bank or nobody who would infuse its equity if its equity is going to be diluted," Mehta added.
The Supreme Court is hearing appeals filed by Yes Bank and the RBI against a 2023 Bombay High Court (HC) judgment that had set aside the writedown of the AT1 bonds.
In January, the apex court stayed the HC ruling and issued notices to bondholders.
During the hearing on Wednesday, the top court described the complete writedown as an “extreme” step and sought clarity on the legal provisions authorising Yes Bank and the RBI to take such action.
The court had also directed the petitioners to provide a detailed classification of bondholders based on their exposure, while observing that small investors should not be adversely affected.
The top court has also asked all stakeholders to compile a note of their submissions and submit the same to it in a week. The matter will likely be taken up again in July.
The dispute stems from the RBI-led reconstruction plan for Yes Bank in March 2020, under which AT1 bonds worth more than ₹8,300 crore were written down.
During the previous hearings in the case, Yes Bank had argued that the bond writedown action was in line with the RBI's Basel III capital norms.
Bondholders, represented by Axis Trustee Services, challenged the decision, contending that the Yes Bank administrator lacked the authority to approve the writeoff and that only the RBI could authorise such a measure.
The Yes Bank Reconstruction Scheme, 2020, was framed by the RBI under the Banking Regulation Act after Yes Bank faced a severe financial crisis in March that year. In simple terms, it was the rescue plan designed to prevent the bank from collapsing.
According to the bondholders, once the scheme came into force and the new board was constituted, the administrator’s powers effectively ceased.
They also contended that the writeoff disrupted the usual hierarchy of losses because equity shareholders retained some value while AT1 bondholders were completely wiped out. According to the investors, bondholders should not have been treated worse than shareholders.
According to data placed before the court, the Securities and Exchange Board of India (Sebi) had found that 1,346 retail investors had invested around ₹679 crore in the AT1 bonds. Of them, 1,311 were existing Yes Bank customers, who had invested nearly ₹663 crore.
Sebi had also flagged that 277 customers prematurely withdrew fixed deposits worth about ₹80 crore and reinvested the money into the AT1 instruments.
Institutional investors in the bonds included Nippon Mutual Fund, Barclays, Kotak Mutual Fund, Franklin Templeton, 63 Moons, Indiabulls Housing Finance, and Reliance Industries.
[The Business Standard]
