They thought they were putting their money somewhere safe. Some had gone to Yes Bank looking to make fixed deposits. Others wanted a steady income from their savings. Instead, they ended up with AT-1 bonds—complex financial instruments that can be written down to zero when a bank runs into trouble.
When I spoke to these investors in March 2020, the shock was palpable. They struggled to understand how money they believed was safe could simply disappear. Madhu Patni, whose son said she had invested Rs 70 lakh after her husband’s death, was among them. In Amritsar, shopkeeper Baldev Arora feared losing Rs 20 lakh that he said he had saved for his children’s education.
Their stories formed the Six years later, the Supreme Court has upheld the decision to quash the write-off of Rs 8,415 crore in AT-1 bonds, delivering a major legal victory for bondholders. But the ruling also reopens a larger question: how could a financial product designed to absorb a bank’s losses end up in the hands of customers who say they did not understand the risks?
AT-1, or Additional Tier 1, bonds are a form of capital that banks raise to strengthen their ability to absorb losses. They became part of the banking framework under Basel III, introduced after the 2008 global financial crisis.
They are not fixed deposits. AT-1 bonds are generally perpetual instruments, which means they have no fixed maturity date. They may offer higher interest than ordinary deposits, but they also carry a risk that depositors do not face in the same way: under specified conditions, the principal can be written down, in some cases to zero, or converted into equity. The terms of the instrument govern how that risk works.
The idea is that when a bank comes under severe financial stress, these bonds can absorb losses and help protect the wider banking system. That makes them high-risk securities, not a substitute for a fixed deposit.
In the Yes Bank case, the legal dispute went beyond whether AT-1 bonds can be written off. The question was whether the bank’s administrator had the authority to do so after the final reconstruction scheme for Yes Bank had come into force. The Supreme Court upheld the Bombay High Court’s decision that the March 2020 write-off could not stand under that scheme.
Madhu Patni, a senior citizen living in Gurugram, had invested Rs 70 lakh in seven AT-1 bonds on January 31, 2019. Her son, Chirag Patni, told me she had invested the money after his father’s death, hoping it would provide a regular yearly income.
“My mother bought them on January 31, 2019, and was told repeatedly it is absolutely safe to invest in these bonds,” he said.
When news about Yes Bank first worried her in August 2019, Madhu went to the branch and asked the manager to release her money. Chirag said she was reassured that the investment was safe. The family also had chat messages asking for the money to be released, he said.
“She had gone there to make a fixed deposit and was unfortunately convinced to buy these bonds,” Chirag told me.
The family said the risks had never been explained to her. “All in all, we have been trapped completely by the banking system, by the banks, and by the people that work for these banks,” he said.
Baldev Arora, a 45-year-old shopkeeper in Amritsar, had wanted to increase his fixed-deposit savings. He said he was persuaded to buy AT-1 bonds for a slightly higher rate of interest.
His relationship manager, Sandeep Arora, was a relative who worked at Yes Bank’s Mall Road branch. Baldev said he had been assured more than once that his money was safe and that the bonds would earn better interest.
Baldev stood to lose Rs 20 lakh if the RBI’s proposed write-off went ahead in March 2020. He told me the money was meant for his children’s education.
“I saved the money for my children, for their education. Those were my life savings invested in the bonds,” he said.
He also said he had sought a fixed and riskless return and that the bank employee had promised it to him in writing.
Sandeep, who had left Yes Bank seven months before I spoke to him, disputed the allegation that the sale was improper.
He said the documentation was in place and disclosed the risks of the bonds. He had sold them in January or February 2019, he said, when Yes Bank was not in such deep trouble, and understood the severity of the crisis only after the RBI intervened.
He also said he had continued advising Baldev because they were family and denied having a reason to mislead him.
The disagreement went to the heart of what retail investors were alleging: that the risks might have been mentioned in documents, but the product had been presented to them as a safe way to earn a little more on their savings.
Rajesh Dipak Bhattacharjee, a retired finance professional in Kolkata, had invested Rs 10 lakh in one AT-1 bond. He wrote to the RBI objecting to the decision to permanently write down the securities.
“I object to the decision taken by RBI that Additional Tier 1 Bonds are being permanently written down,” he told me in March 2020.
Bhattacharjee said Yes Bank staff had not properly explained the product when they sold it to him. He wanted retail investors to get their principal back, even if they could not recover the interest.
“I request you to please reconsider this decision and not let bondholders like me lose money and faith in the regulator, government and system,” he wrote.
He was not alone. A group of 21 retail bondholders had sent a letter to Finance Minister Nirmala Sitharaman in March 2020, asking for urgent intervention and saying their “life savings are at stake”. At least three other retail investors I spoke to also alleged that Yes Bank relationship managers had persuaded them to buy the bonds without adequately explaining the risks.
Their accounts raised questions about how a product meant to absorb a bank’s losses had reached individual customers who said they were looking for safe returns on their savings.
Yes Bank had begun issuing AT-1 bonds around 2016, with large issuances in the 2016-17 and 2017-18 financial years.
The bonds had an initial call option after five years, but that did not guarantee repayment on that date.
By early 2020, Yes Bank was in deep trouble. On March 5, the RBI imposed a moratorium and superseded the bank’s board. A reconstruction plan was drawn up, with State Bank of India and other investors brought in to help rescue the lender.
The draft plan included a provision for writing down AT-1 bonds. That provision did not make it into the final reconstruction scheme notified on March 13, 2020.
The following day, Yes Bank’s administrator ordered the permanent write-off of AT-1 bonds worth Rs 8,415 crore. The move wiped out the principal invested in the affected bonds, including money held by retail and institutional investors.
For bondholders, the difference between the draft and final schemes would become central to the legal battle. They argued that once the final scheme came into force without the write-down clause, the administrator could not simply proceed as though it was still there.
Bondholders challenged the write-off, arguing that the final reconstruction scheme did not authorise the administrator to extinguish their bonds. The Bombay High Court agreed. On January 20, 2023, it set aside the write-off.
Yes Bank, the RBI and the Union government challenged that decision in the Supreme Court. The case turned on whether the administrator could write down the bonds after the final reconstruction scheme had come into force, particularly when the provision allowing that step had been omitted from the final version.
On October 15, 2026, the Supreme Court dismissed the appeals and upheld the High Court’s decision.
The court held that the administrator had acted under the erroneous impression that he retained the power to write down the bonds after the reconstruction scheme was finalised. It also found that the omission of the write-down clause was a conscious decision and that the administrator could not exercise a power the final scheme did not provide.
The judgment went beyond the technical question of the administrator’s authority. The court criticised Yes Bank for offering AT-1 bonds to individual investors despite RBI rules restricting the sale of these high-risk instruments to eligible institutional investors. It said closer scrutiny should have been exercised before individual investors were drawn into such securities.
The court was also sharply critical of the RBI’s oversight as Yes Bank’s financial position deteriorated. It said the central bank had been a “mere bystander” as the bank’s core equity capital ratio fell to 0.6% by the end of 2019, below the required level.
The ruling was not a finding that AT-1 bonds can never be written off. It was a ruling that this particular write-off could not stand under the reconstruction scheme and the applicable framework.
Justice has been upheld, but it has taken six years. For families who had put their savings into these bonds, the loss was not just about money on paper. It meant years of uncertainty and the possibility that plans for their children’s education, their future, or their financial security had to be put on hold.
The Supreme Court’s decision is a welcome one. By upholding the quashing of the write-off, it has reinforced an important legal principle: the powers exercised in a bank’s rescue must remain within the framework of the final reconstruction scheme. The ruling also raises serious questions about the sale of high-risk financial products to retail investors.
It could have implications beyond Yes Bank, particularly for how banks and regulators approach the sale and write-down of AT-1 instruments.
For the affected bondholders, however, the fight is not over. The Supreme Court has upheld their case, but after six years of waiting, they are still looking for relief that makes a difference to their lives.