Parliament fixed Yes Bank’s deposits in 2020, but it never clearly answered who may wipe out Additional Tier-1 bondholders when an administrator—not the Reserve Bank of India itself—signs the reconstruction papers. The Supreme Court’s 15 October judgment exposing that gap is less a one-off win for retail creditors than a warning that the next banking scare will arrive with the same legal fog.
Administrators are not regulators
Justices Dipankar Datta and Augustine George Masih ruled that the administrator appointed during Yes Bank’s collapse could not exercise the RBI’s power to write down perpetual debt. Bondholders argued, successfully, that the write-off clause never made it into the final scheme investors approved. The bench asked bluntly whether the regulator understood who held authority when it crafted the bailout.
That question should have been settled before Rs 8,415 crore of AT-1 paper vanished. Instead, thousands of retirees who bought the instruments through wealth desks spent six years in court while the bank rebuilt under a consortium led by State Bank of India and, later, Sumitomo Mitsui Banking Corporation.
Markets priced the wrong lesson
For months after 2020, other lenders marketed AT-1 notes to yield-hungry investors with footnotes about point-of-non-viability triggers. The Yes Bank episode was treated as sui generis rather than a template. Mutual funds that marked the bonds to zero must now confront recovery cash flows, while Yes Bank itself must explain how a profitable quarter coexists with a Rs 5,217 crore pro forma loss if the judgment stands in full.
None of that reduces the need for clearer statute. Leaving write-down authority ambiguous invites litigation that drags long after executives move on, precisely when capital markets need predictable loss absorption.
What lawmakers should do now
A narrow amendment to the Banking Regulation Act could specify that only the RBI board—or Parliament through an express clause in a reconstruction scheme—may extinguish AT-1 instruments, and that administrators may act solely within the four corners of that scheme. Disclosure rules for retail sales of perpetual debt should also tighten: if the product can be zeroed, the prospectus must name the exact officeholder who pulls the trigger.
Until then, every AT-1 primary deal will carry a litigation discount, and every administrator will operate under a cloud. Fixing Yes Bank’s balance sheet was the easy part; fixing the rule book is still unfinished business.