Centre Backs Yes Bank Bond Write-Off in SC

The Indian government has officially supported the write-off of ₹8,400 crore in Yes Bank's Additional Tier-1 (AT1) bonds. This backing was presented in the Supreme Court as crucial for safeguarding depositors and ensuring the lender's viability during its 2020 restructuring. The Centre submitted a Cabinet Resolution from March 2020, affirming its decision-making role.

Defending the mechanism, the Centre, alongside the RBI and SBI, argued that AT1 bond norms permit bondholders to absorb losses when a bank becomes non-viable. These bonds, carrying face values of ₹10 lakh, offer higher returns over 9% due to their inherent risk of write-down during financial distress. The government highlighted that permitting such write-offs is vital for maintaining financial stability across the banking sector, as over ₹1 lakh crore of such bonds have been issued by various banks.

The Supreme Court is currently reviewing pleas challenging a 2023 Bombay High Court ruling that had previously invalidated the AT1 bond write-off. The apex court had earlier stayed the High Court's order and sought clarity on the legal provisions governing these actions. The court also expressed concern over disproportionate impacts on small investors, directing petitioners to provide a detailed breakdown of bondholders.

This dispute originated in March 2020 when the RBI-led reconstruction plan for Yes Bank led to the write-off of AT1 bonds exceeding ₹8,300 crore, citing Basel III capital regulations. Bondholders contested this, arguing the Yes Bank administrator lacked the authority for such a decision. Market data indicates that 1,346 retail investors invested approximately ₹679 crore in these bonds, with a significant portion being existing Yes Bank customers. Institutional investors, including prominent mutual funds and financial institutions, also held these high-risk instruments.