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Informist, Wednesday, May 20, 2026

 

NEW DELHI – Noting that additional tier-1 bonds worth INR 1 trillion were presently issued by various banks, the Ministry of Finance told the Supreme Court that any interpretation by the latter on the Reserve Bank of India's master circular on BASEL III norms that would take away the loss absorption feature from these bonds would have a very cascading and irreparable effect on the financial system. The banks and the regulator would no longer be relying on these bonds to provide for loss absorption if an adverse order is passed by the apex court, said the ministry.

 

The apex court was hearing appeals by YES Bank Ltd., the finance ministry, and the Reserve Bank of India against the Bombay High Court's 2023 order to set aside YES Bank's decision to write off additional tier-1 bonds worth 84.15 bln rupees as part of a reconstruction scheme. In a hearing in the first half of the day, the top court had asked the finance ministry to give details of the Cabinet resolution or meeting and related documents where the decision to write off YES Bank Ltd.'s additional tier-1 bonds was taken.

 

In the afternoon, Solicitor General of India Tushar Mehta, appearing for the ministry, stated that 20 out of 24 ministers were present in the meeting for the scheme regarding YES Bank's write off. There were three resolutions in the meeting, including the one on YES Bank, which was approved and signed by Prime Minister Narendra Modi.

 

Mehta said due to the financial problems in YES Bank, the Reserve Bank of India had started efforts to ensure that the bank survives. Thereafter, it was agreed that there would be reconstruction of YES Bank by which State Bank of India was required to infuse a fund of INR 78.10 billion. SBI agreed to infuse this capital only based upon the fact that the additional tier-1 bonds would be written down and its equity will not be diluted.

 

When the investors in additional tier-1 bonds have taken a calculated risk which carries an inherent loss absorption feature, any conversion of these bonds would not only have an adverse impact on YES Bank but would also disincentivise other banks from infusing capital into weak banks in future which may defeat the very intent and purpose of issuance of BASEL III compliant AT-I Bonds as per RBI guidelines, said the finance ministry. There would not be any other entity like SBI who would be ready to infuse the equity to ensure that a bank survives in the larger interest of its members and depositors, said the ministry.

 

The high court's ruling came on petitions by YES Bank's additional tier-1 retail bondholders. In February, the top court had reserved its order after hearing all the parties. However, later the top court recalled its order and asked the government to reply to queries on decisions to write off YES Bank's additional tier-1 bonds. Wednesday, the apex court again reserved its decision in the case.

 

Wednesday, the shares of YES Bank ended 0.1% higher at INR 22.00 on the National Stock Exchange.  End

 

Reported by Surya Tripathi

Edited by Akul Nishant Akhoury

 

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