NEW DELHI: The Supreme Court on Thursday said it will conclude hearings in the third week of January on appeals filed by the Reserve Bank of India (RBI), Yes Bank and others challenging the Bombay high court’s 2023 ruling that struck down the March 2020 write-off of about ₹8,415 crore worth of additional tier-1 (AT-1) bonds.
A bench of justices Dipankar Datta and Augustine George Masih adjourned the matter, saying the court will resume proceedings from 15 January to complete arguments, after which the judgment will be reserved.
The apex court is considering challenges to the high court’s January 2023 order, which held the write-off invalid and ruled in favour of bondholders who argued they were unfairly made to absorb losses ahead of equity shareholders. The write-down formed a central part of an RBI-led reconstruction plan that recapitalized Yes Bank at the peak of its crisis in March 2020, marked by surging bad loans, governance failures and severe liquidity stress.
In December 2016, the bank raised ₹3,000 crore in AT-1 bonds, offering a coupon of 9.5%; later, in October 2017, it raised ₹5,415 crore through AT-1 bonds, offering a 9% coupon.
If the Supreme Court upholds the high court ruling, Yes Bank may have to reimburse bondholders with 9% annual interest, a decision that could materially affect the lender’s finances and set a precedent for future bank resolution mechanisms.
During Thursday’s hearing, senior advocate Aryama Sundaram, appearing for Axis Trustee on behalf of institutional AT-1 bondholders, argued that investors who bought the high-yield instruments did so with full awareness of the risk and cannot now challenge the outcome after a trigger event.
AT-1 bonds offered returns of 9-9.5% precisely because they were designed to absorb losses in distress, Sundaram said, noting that the Information Memorandum, RBI Master Directions and bond terms clearly warned of the possibility of permanent write-off.
Sundaram said the writ petition before the Bombay High Court targeted only the administrator’s 14 March 2020 order, not the RBI-approved reconstruction scheme or regulatory circulars, and argued that reversal would unfairly shift losses to small depositors and the State Bank of India-led rescue consortium.
In earlier hearings, Yes Bank administrator had defended the write-off as legally valid and essential to prevent collapse, citing powers under the Basel-III Master Circular, Clause 57 of the Information Memorandum, and Section 36ACA of the Banking Regulation Act.
The administrator had said that statutory trigger conditions, including breach of the common equity tier-1 (CET-1) capital threshold and the bank reaching the point of non-viability, had been met. He further told the top court that the write-down was essential to rebuild the bank’s CET-1 capital, safeguard its financial stability, and facilitate State Bank of India’s ₹10,000-crore investment under the revival scheme, and argued that the bank’s reconstitution was not complete until fresh capital was injected and a new board formally took over.
AT-1 bonds, introduced globally after the 2008 financial crisis, are perpetual instruments with trigger points linked to a bank’s capital and earnings. If these thresholds are breached, interest payments can be halted. These are among the riskiest bank capital instruments and come last in the repayment hierarchy.
The controversy intensified after the Securities and Exchange Board of India in 2022 imposed a ₹2 crore penalty on former Yes Bank CEO Rana Kapoor for allegedly mis-selling AT-1 bonds to retail investors as “super FDs”. Around ₹300 crore of the bonds were held by retail buyers.
Crisis backstory
Yes Bank’s near-collapse followed rapid financial deterioration between 2018 and early 2020, driven by aggressive corporate lending that fuelled bad loans and eroded depositor confidence.
RBI imposed a moratorium on 5 March 2020, capping withdrawals at ₹50,000 and superseding the board. A rescue package backed by SBI, ICICI Bank, HDFC Bank, Axis Bank, and Kotak Mahindra Bank injected crucial capital, with the AT-1 bond write-off on 14 March 2020 becoming central to the revival plan.
The decision triggered a wave of litigation led by Axis Trustee Services and 63 Moons Technologies, with the Bombay high court ruling the write-off ultra vires on 20 January 2023.
In contrast, the Madras High Court upheld RBI’s authority to allow write-downs in a separate petition by 63 Moons Technologies. RBI and Yes Bank appealed, and the Supreme Court stayed the ruling in March 2023, keeping the write-off in effect pending final adjudication.
