Indian Court Overturns Yes Bank AT-1 Write-Off: What It Means for Markets

what happened

According to Moody's, India's Supreme Court set aside the Rs 8,415 crore write-off of Yes Bank's Additional Tier-1 bonds. The court called the Reserve Bank of India a "mere bystander" and noted that the bank's CET-1 ratio had fallen to 0.6%. It also held that placing the consequences of administrative lapses on investors would be unfair.

The author, a former central banker, argues the verdict does not make AT-1 bonds risk-free, but it challenges the legal basis of the write-off and the instrument's design. He notes that Australia's APRA has decided to phase out AT-1 eligibility by 2032, and suggests India should consider a similar, gradual approach.

why it matters

Two points matter for markets. Holders of such bonds gained a legal argument against arbitrary write-offs, while banks could face higher funding costs if AT-1 instruments lose their status as regulatory capital. SMBC, which acquired a stake in Yes Bank in 2025, will reassess its exposure in light of the ruling.

market impact

Indian bank debt and AT-1 bonds: the ruling raises legal risk and could lift banks' funding costs if the instrument loses capital status.

tags

instruments