India's top court voids Yes Bank's $880 million AT-1 bond write-off (updated)

Yes Bank

15/10/2026 10:38

Top court dismisses appeals by Yes Bank, RBI and government against 2023 Bombay High Court ruling
Ruling means bond restoration could hit Yes Bank profit and lower capital adequacy
Court says Yes Bank sold AT-1 bonds to individuals in breach of RBI rules
Adds chart, implication for Kotak Mutual Fund
By Arpan  Chaturvedi and Ashwin Manikandan
NEW DELHI/MUMBAI, Oct 15 (Reuters) - India's Supreme Court on Thursday set aside Yes Bank's YESB.NS write-off of 84 billion rupees ($883.70 million) in additional tier-1 bonds, dealing a blow to the lender and regulators that had defended the 2020 wipeout.
Reuters has reviewed a copy of the order.
Mid-sized Indian lender Yes Bank, in which Japan's Sumitomo Mitsui Banking Corporation SUMFDS.UL now holds a 24% stake, was declared insolvent six years ago. Under a restructuring scheme, new investors were brought in, and its AT1 bonds were written off, while equity holders faced only a three-year lock-in on 75% of their shares.
AT1 bonds are high-risk debt instruments that offer higher returns but can be written off or converted into equity when a bank comes under financial stress.
 Yes Bank's AT1 bondholders challenged the write-off, and the Bombay High Court ruled in their favour in 2023. Yes Bank, the Reserve Bank of India and the federal government appealed that ruling, but the Supreme Court has now upheld the lower court's decision.
The Supreme Court said the bank's administrator acted under the "erroneous impression" that he retained the power to write down the bonds after the restructuring scheme was finalised, and ruled that the write-off was "impermissible".
"We have good reasons to infer that the central government had taken a conscious decision to exclude the clause permitting writing down of the AT-1 Bonds from the Reconstruction Scheme," the top court said.
Yes Bank shares fell as much as 14.5% after the ruling. The lender said in an exchange filing it was "in the process of obtaining and examining the final order copy of the judgment."
 Restoring the AT1 bonds would result in a one-time hit to Yes Bank's profit and loss account and reduce its capital adequacy ratio.
"This decision creates regulatory uncertainty that can have the potential to impact investor sentiment," said Vivek Ramji Iyer, a partner and national leader for the financial services risk advisory practice at Grant Thornton. 
Japan's Sumitomo Mitsui Banking Corporation bought a 24.99% stake in the Mumbai-based lender last year.
RELIEF FOR BOND HOLDERS
The ruling is a relief for Yes Bank's AT1 bondholders, who had argued the securities were mis-sold and could not be written off after the restructuring plan was finalised.
 "We now urge the bank to return our money without further delay so we can close this chapter," said Saurabh Mehta, a Bengaluru-based retail investor whose parents hold the bonds.
 The Supreme Court said Yes Bank had sold the bonds to individual investors in breach of RBI rules restricting such high-risk securities to institutions including mutual funds and insurers. The bank "not only permitted but actively offered" the bonds to individuals, it said.
 "A tighter scrutiny ought to have been exercised before luring individual investors to such high-risk securities," the court said.
 The court also said the RBI was "a mere bystander" as Yes Bank's core equity capital ratio fell to 0.6% by the end of 2019, against a required 7.375%.
 Institutional investors including Kotak Mahindra Mutual Fund and Nippon India Asset Management, which held the securities, also stand to benefit from the ruling.
 Kotak and Nippon, however, temporarily halted subscriptions to some funds that held the bonds, citing the prospect of a sudden increase in their net asset values, which could sharply raise the price of units for new investors.
 
($1 = 95.0550 Indian rupees)
     

 (Reporting by Arpan Chaturvedi in New Delhi and Ashwin Manikandan and Gopika Gopakumar in Mumbai; Nishit Navin in Bengaluru; Editing by Leroy Leo, Tasim Zahid and Anil D'Silva)
 ((Nishit.Navin@thomsonreuters.com;))