The Supreme Court has upheld a Bombay High Court order quashing Yes Bank's 84.15-billion-rupee additional tier-1bond write-off in 2020, Mint reported.

According to the report, the court dismissed appeals by Yes Bank and the RBI challenging the High Court's January 2023 ruling in favour of bondholders. The dispute centred on the legality of the write-off during the bank's reconstruction, which was led by State Bank of India and other lenders after the RBI intervened in March 2020.

The Centre, the RBI, and Yes Bank had argued that the write-off was necessary to rebuild the lender's capital and support its rescue. The government also warned that the ruling could have wider implications for AT-1 bonds, designed to absorb losses when banks face financial distress. Mint reported that around 1.81 trillion rupees of such instruments were outstanding across Indian banks.

AT1 is intended to be a perpetual bond, meaning that there will never be a redemption of principal, except when the issuer exercises a call. Because they are designed to absorb losses in the same manner as equity, they also pay higher coupon rates than bonds with longer tenures. And that is why the name Additional Tier 1 Capital took hold.

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