The Yes Bank AT1 litigation exposes the tension between regulatory discretion in bank resolution and contractual rights of investors. Examine.

In March 2020, Yes Bank's reconstruction wrote down ₹8,415 crore of Additional Tier-1 (AT1) bonds. In October 2026, the Supreme Court upheld the Bombay High Court's 2023 order that set this write-down aside [5]. The case shows that the regulator's power to act in an emergency must still rest on clear legal authority.

Regulatory discretion: the rationale

• Bail-in logic: AT1 bonds are loss-absorbing capital under Basel III. The RBI's draft scheme wrote them down "permanently, in full" [1].
• Speed and stability: Yes Bank's steady decline and "serious governance issues" led the Centre, on the RBI's application, to impose a moratorium under Section 45 of the Banking Regulation Act on 5 March 2020 [2]. SBI-led capital then rescued the bank [1].
• Depositor protection: Deposits and other liabilities continued on their existing terms [1]. Junior capital took the losses, not savers.

Investors' contractual rights: the counterweight

• Rule of law: The Government notified the final scheme on 13 March 2020 [3], but it was the administrator who ordered the write-down. The High Court set that order aside [5]. Contract and property rights can be cancelled only through a specific legal power, not through a general regulatory intent.
• Judicial review: By dismissing the appeals of the RBI, the Union and Yes Bank, the SC confirmed that emergency resolution is not beyond review by the courts [5].
• Investor protection: SEBI took adjudication action over how Yes Bank's AT1 bonds were sold [6]. Many retail buyers had not understood the risk they were taking on.
• Market confidence: Yes Bank must now account for a ₹8,415 crore liability, and its shares fell [5]. Uncertainty over whether write-downs will hold up in court raises the cost of AT1 issuance for all banks.

Reconciling the two

• Write the power into the notified scheme: Any write-down should take effect on the appointed date. It should not be left to a later administrative order.
• Statutory clarity: The 2020 amendment already lets the RBI start a scheme without a moratorium [4]. A dedicated resolution law should also set the order in which AT1 and Tier-2 bonds absorb losses.
• Suitability norms: Retail investors should be told plainly that AT1 bonds can lose all their value.

The ruling does not reject the bail-in principle. It rejects a write-down carried out without clear legal backing. If the RBI's powers are clearly codified and investors are properly informed, India can have both swift bank resolution and respect for contracts. That would protect financial stability and the constitutional guarantee of fair process.