The Supreme Court on October 15 upheld the quashing of a Yes Bank write-down which had wiped out Additional Tier-1, or AT-1, bonds worth ₹84.15 billion. The administrator had announced the write-down in March 2020, one day after the rescue scheme had been notified.

The rescue case was strong. But the rescue case did not supply the missing power. Necessity explains why the rescue was needed. Necessity does not give the administrator the power.

The SC did not reject loss absorption by AT-1 bonds. The SC decided two narrower questions: 

Who could write the bonds down, and when. 

The urgency of saving a bank could not make the two questions irrelevant.

A moratorium had begun in March 2020. State Bank of India had agreed to take up to 49% of Yes Bank. Private lenders had joined at the same ₹10 a share.

The appellants had told the SC the write-down and SBI’s investment had to come together. The argument treated the rescue and the losses as one package. But an economic case for the transaction was not a legal authorisation to carry the transaction out.

The draft scheme of March 2020 had written the bonds down in full. Bondholders had objected, and their trustee had asked for conversion into equity. The final scheme had dropped the write-down clause.

In January 2023, the Bombay High Court had held the administrator had exceeded his powers. The SC agreed. A rescue could be necessary without every action taken in the name of the rescue being lawful.

Unequal Outcomes
Existing shareholders had kept their shares. Three-quarters of the bondholders had said they were open to conversion into equity. They got nothing.

The RBI’s internal note of March 2020 had priced conversion at ₹51 a share, against ₹10 for the rescuers, and valued conversion at about 20% of the investment.

In September 2025, SBI had sold 13.18% of Yes Bank’s shares to Sumitomo Mitsui Banking Corporation at ₹21.50 a share, an 18% premium to the market price.

The contrast is striking, but the contrast settles nothing about the law. 

Whether the rescuers gained is a question of economics. 

Whether the write-down was lawful is a question of law. 

The SC answered only the second.

Nor did the SC decide equity had to absorb losses before the bonds. The bond terms did not require the sequence, and the judgment did not change the ranking of the bonds. The legal defect lay in the exercise of power, not in the unequal outcomes.

Authority Matters
The SC concluded the Centre had dropped the write-down clause from the scheme on purpose. The RBI’s own note had advised dropping the clause because the existing rules and bond terms already applied.

But removing the clause did not transfer the RBI’s powers to the administrator. A general saving clause could not supply a power the scheme withheld.

Yes Bank had the option to write down the bonds, and in one series to convert them, when Yes Bank’s core equity ratio fell below 6.125%. The ratio had stood at 0.6% in December 2019. At the point of non-viability, the power to decide the trigger and write down the bonds lay with the RBI.

Timing mattered too. The SC read the duty under the Master Circular as arising before the scheme took effect on March 13, 2020. The administrator acted on March 14.

Who exercises a power, and when the power can be exercised, are limits on the power itself. Neither was a formality to tidy up after the rescue.

The SC also found Yes Bank had offered the AT1 bonds to individual investors, against the Master Circular. The finding adds to the questions about the sale of the instruments, but the finding is distinct from the authority to write the bonds down.

The Credit Suisse episode offers a parallel, not an identical precedent. Swiss authorities ordered a write-down of about SFR 16.5 billion of bonds during the UBS takeover in March 2023. In October 2025, the Federal Administrative Court revoked the order of the Swiss regulator, FINMA, in a partial decision, finding the legal basis insufficient. FINMA appealed. The case remained undecided at the last report in March 2026

Ranking rules and contractual terms differ across jurisdictions. The relevant connection is narrower: the capacity of an instrument to absorb losses does not, by itself, settle whether a particular authority lawfully imposed the losses.

The SC dismissed the appeals and vacated interim orders, allowing the Bombay High Court’s quashing to operate. But the judgment sets no mechanism for repaying principal. It says annual coupons remain payable under the Information Memoranda.

The missing mechanism limits what bondholders can take from the ruling immediately. The principle behind the ruling stands.

AT1 investors can bear losses and regulators can have powers to impose losses. Neither proposition gives an administrator permission to act beyond the administrator’s authority or after the relevant window has closed. A bank rescue needs speed, but does not get a free pass.

Disclosure: The Author owns shares of Yes Bank