Evaluate the efficacy of India's bank resolution framework in light of the Yes Bank reconstruction (2020). Is a dedicated resolution law needed?

India has no dedicated law for resolving failing banks. It relies on Section 45 of the Banking Regulation Act, 1949, which provides a moratorium followed by a reconstruction scheme drafted by the RBI [1]. The Yes Bank episode showed that this approach can rescue a bank quickly, but it cannot always make the outcome hold up in law.

Strengths: what worked

• Speed: The Centre imposed a moratorium on 5 March 2020 on the RBI's application [1]. The reconstruction scheme was notified on 13 March, eight days later [4].
• Depositor protection: Deposits and other liabilities continued on the same terms [3]. This prevented a run on the bank and stopped panic spreading to other banks.
• Anchor investor, not a budget bailout: SBI agreed to take a 49% stake and to keep at least 26% for three years [2].
• Learning by doing: The BR (Amendment) Ordinance, 2020 now allows a scheme without first imposing a moratorium [5].

Weaknesses: what it exposed

• Late action: The RBI itself cited a "steady decline", failed attempts to raise capital and "serious governance issues" [1]. Supervisors moved only when the bank was already in crisis.
• Legally weak bail-in: The RBI's draft scheme proposed writing down AT1 bonds permanently and in full [2]. The Bombay HC (2023) set aside the administrator's write-down, and the Supreme Court (2026) upheld that order. This brought back a ₹8,415 crore liability [6]. Basel III's loss-absorption principle failed because it lacked a clear legal basis.
• Case-by-case decisions: The order in which creditors bear losses is decided separately in each scheme. This uncertainty makes AT1 bonds riskier for investors and costlier for banks to issue.

Is a dedicated law needed? Yes, if it is carefully designed

• Set out in law the order of loss-bearing among creditors and when a bail-in is triggered, so that write-downs survive judicial review.
• Create a single resolution authority with tools such as bridge banks, asset transfers and early triggers linked to Prompt Corrective Action.
• Learn from the FRDI Bill, 2017, which was withdrawn over worries about bail-in and the adequacy of deposit insurance [7]. A new law should explicitly protect insured deposits.

Yes Bank shows that the current framework protects financial stability but gives creditors little legal certainty. A carefully drafted resolution law would give the RBI's speed a firm legal basis and protect depositors. It would also strengthen domestic financial institutions, in line with SDG 8.10.