Yes Bank’s disclosure that the Supreme Court’s AT1 bond verdict could have converted its September-quarter profit into a loss has reopened a difficult question for India’s bank-resolution framework: who ultimately bears the cost when securities written off during a rescue are restored by the courts? The bank reported a net profit of ₹1,080 crore for July-September, but said its pro forma result would have been a loss of ₹5,217 crore if it had recognised the judgment’s full impact.
The disclosure is not an accounting restatement. Yes Bank said the figures are indicative and unaudited, and that it has not recognised the judgment’s impact in its reported results because it is still assessing the consequential legal, financial, regulatory and accounting implications. That distinction matters. The headline number represents a potential liability and capital effect, not a final charge already recorded in the bank’s books.
Yet the disclosure shows why the ruling is significant beyond one quarter’s earnings. The court decision reaches back to the 2020 rescue of Yes Bank, when the bank’s administrator wrote down ₹8,415 crore of additional tier-1, or AT1, bonds to zero. The securities had been issued in two tranches: ₹3,000 crore in December 2016 with a 9.5% coupon and ₹5,415 crore in October 2017 with a 9% coupon. Mutual funds and retail investors challenged the write-off, with several retail investors saying the bonds had been mis-sold to them.
The Supreme Court dismissed appeals against a Bombay High Court ruling that had quashed the write-off. According to the report, the Supreme Court held that the administrator appointed during the government-backed rescue did not have the authority to extinguish the securities. The Bombay High Court had earlier found that the administrator could not take the decision after the bank had been reconstituted and that the final reconstruction scheme did not provide for writing down the AT1 bonds.
The legal outcome therefore collides with the financial logic of the 2020 rescue. Yes Bank had expanded rapidly through corporate lending after its founding in 2004, but concerns over asset quality and governance eventually intensified. The Reserve Bank of India assessed gross non-performing assets at ₹8,373.8 crore, compared with the ₹2,018.6 crore reported by the bank, creating a gap of ₹6,355.2 crore. The RBI did not extend founder Rana Kapoor’s term beyond January 31, 2019.
On March 5, 2020, the central bank took control of the bank’s board and capped withdrawals at ₹50,000 per depositor. Former State Bank of India executive Prashant Kumar was appointed administrator. A reconstruction plan followed, with SBI, ICICI Bank, HDFC Ltd, Axis Bank and Kotak Mahindra Bank contributing equity. Shareholders retained their shares, although 75% of the holding of certain investors was locked in for three years.
The AT1 write-off was part of that emergency intervention. These instruments are designed to absorb losses in specified circumstances and sit below more senior forms of bank capital. In the Yes Bank case, the entire ₹8,415 crore was written down on March 14, 2020. The Supreme Court ruling now requires the bank and the authorities to determine what follows from restoring the bondholders’ claims, including the accounting treatment, regulatory consequences and any legal remedies.
Yes Bank’s own numbers show the potential pressure. Its reported common equity tier-1 ratio, or CET-1 ratio, was 13.7% at the end of the September quarter. On the bank’s pro forma basis, including the effect of the judgment, the ratio would have been 11.4%. Return on assets would have moved from a reported 0.9% to a negative 4.3%. For the April-September half, the pro forma loss would have been ₹4,146 crore, against a reported profit of ₹2,151 crore.
Those figures are not identical to the estimates published by ratings agencies before the bank’s disclosure, but they point in the same direction. Crisil Ratings estimated that a full reversal could reduce the CET-1 ratio by 230-250 basis points. Icra estimated an impact of about 255 basis points, while CareEdge Ratings put the possible reduction at 250-300 basis points. The agencies’ estimates would take CET-1 to roughly 11-11.5% from about 14% at the end of June.
The capital ratio is the more consequential measure for the bank’s future operations. A lower CET-1 ratio reduces the cushion available to absorb losses and may affect the pace at which a lender can expand its balance sheet. Yes Bank has already said it is evaluating options to strengthen its capital buffers to support growth. The bank’s next decisions will depend on the final accounting and regulatory treatment, not simply on the court’s finding that the write-off was invalid.
At the same time, the reported quarter contains evidence of a continuing operational recovery. Net profit rose 65% from a year earlier and was flat compared with the June quarter. Operating profit increased 29.4% to ₹1,678 crore, while net interest income rose 22.7% to ₹2,822 crore. Gross non-performing assets declined to 1.2% from 1.6% a year earlier. These numbers suggest that the bank’s ordinary banking performance was improving even as the legacy AT1 dispute created a potentially large balance-sheet challenge.
That contrast is central to understanding the case. Yes Bank’s current earnings momentum cannot by itself neutralise a legal obligation linked to securities issued and written off during the rescue. Conversely, the possible AT1 impact should not be treated as proof that the bank’s current operating business has deteriorated by the same amount. The two issues belong to different layers of the institution: one concerns ongoing income and asset quality, while the other concerns the consequences of a past resolution action.
The investor response shows how quickly a court ruling can move from a legal proceeding into market and funding conditions. Yes Bank shares have fallen more than 17% since the order, according to Bloomberg. Kotak Mahindra Asset Management and Nippon Life India Asset Management have halted fresh investments in their debt and retirement funds that hold the bank’s AT1 bonds, Bloomberg reported. The funds had expected the bonds’ value to rise after the judgment.
The case also tests the boundary between emergency administrative power and investor rights. A bank rescue requires authorities to act quickly and allocate losses in a way that protects depositors and restores confidence. But the Bombay High Court and Supreme Court findings, as described in the report, indicate that the authority used to extinguish the securities was not available under the final reconstruction framework. That creates a difficult institutional question: whether a rescue measure can remain financially effective if its legal basis is later set aside.
The ownership structure adds another layer. Sumitomo Mitsui Banking Corporation agreed in May 2025 to buy a 20% stake from SBI and seven other banks for about ₹13,483 crore. It later increased its holding and became Yes Bank’s largest shareholder. SBI held 10.8% as of September 30, according to the bank’s shareholding pattern. Sumitomo made its investment while the AT1 case was still pending, meaning the bank’s strategic ownership changed before the legal uncertainty was resolved.
The bank’s scale also shows why the issue matters to the wider financial system. Yes Bank reported deposits of ₹3,18,969 crore for FY26, along with net profit of ₹3,476 crore, gross NPAs of 1.3% and net NPAs of 0.2%. The reported figures describe a lender that has moved away from the crisis conditions of 2020, but the AT1 judgment demonstrates how unresolved liabilities from a rescue can remain relevant even after operating indicators improve.
The next stage will be determined by the bank’s assessment and by the response of regulators, bondholders and other parties. Yes Bank said it respects the Supreme Court’s judgment and is examining it in detail. Managing Director and Chief Executive Officer Vinay Tonse said the bank would keep stakeholders informed as matters progress. The scheduled analyst call and the eventual accounting and regulatory decisions will clarify whether the pro forma numbers translate into a recognised financial impact, a capital-raising requirement or another form of consequential action.
What the available evidence establishes is that the verdict creates a potentially large financial and capital burden, while leaving the final treatment unresolved. It also exposes a structural weakness in bank rescues: the financial consequences of a resolution can outlast the emergency itself, and their legitimacy depends on the legal authority behind each step. The material developments to monitor are Yes Bank’s final assessment, regulatory treatment of the restored AT1 claims, the bank’s capital-buffer plans and the response of institutional investors.
