In brief. In March 2020, the Reserve Bank of India superseded the Yes Bank board, installed an administrator, and approved a reconstruction plan that wrote down approximately ₹8,415 crore of Additional Tier 1 (AT-1) bonds to zero. Holders of those bonds, including roughly 1,346 retail investors who had purchased about ₹679 crore worth, were wiped out. The challenge has run through two parallel tracks: a bank-resolution challenge by AT-1 bondholders, which the Bombay High Court allowed and which is now reserved for verdict before the Supreme Court; and a SEBI mis-selling case that, in 2022, imposed a ₹2 crore penalty on former Yes Bank CEO Rana Kapoor for allegedly mis-selling the AT-1 bonds to retail investors as "super FDs." Following the episode, SEBI banned retail participation in AT-1 bonds.
Yes Bank AT-1 is not, on the SEBI side, a story about whether the write-down was lawful. That question belongs to banking regulation and to the constitutional courts. The SEBI story is narrower and more pointed: how were AT-1 bonds, which are structurally the most loss-absorbing capital instrument an Indian bank can issue, ever put in the hands of fixed-deposit-style retail investors in the first place? That is the question the regulator's enforcement action set out to answer.
What actually happened to Yes Bank's AT-1 bonds in March 2020?
The Reserve Bank of India, on 5 March 2020, superseded Yes Bank's board on grounds of governance failure and capital inadequacy, and Prashant Kumar was appointed as administrator. The reconstruction scheme that followed, approved on 13 March 2020, included a write-down of approximately ₹8,415 crore of Additional Tier 1 bonds to zero.1 AT-1 bonds are perpetual, unsecured, loss-absorbing capital instruments issued by banks to satisfy Basel III capital requirements; their defining feature is that, on a trigger such as a Point of Non-Viability (PONV), they can be written down or converted to equity, at the regulator's discretion, before equity shareholders take their loss. That feature, dormant in normal conditions, became the central event for AT-1 bondholders in March 2020.
Who actually held the AT-1 bonds?
Many of them were retail investors. SEBI's investigation found that approximately 1,346 retail investors had invested around ₹679 crore in Yes Bank's AT-1 bonds, of whom 1,311 were existing Yes Bank customers who had invested nearly ₹663 crore.2 That is the data that turns the story from a wholesale capital event into a retail mis-selling concern: AT-1 bonds, an institutional risk product, had been distributed across a customer base that, on the regulator's analysis, did not appreciate either the loss-absorbing feature of the instrument or the conditions under which the feature could be triggered.
What did SEBI find about the way the AT-1 bonds were sold?
That the sales pitch, in many cases, had misrepresented the nature of the instrument. SEBI, in an order in 2022, imposed a ₹2 crore penalty on Yes Bank's former CEO Rana Kapoor on findings of mis-selling the AT-1 bonds to retail investors as "super FDs," that is, as a high-yielding equivalent of a fixed deposit, with the underlying loss-absorbing risk obscured.2 The substantive framework SEBI invoked included the disclosure and conduct obligations of intermediaries and the substantive anti-fraud architecture of the PFUTP Regulations, which is set out in What Does SEBI Use to Punish Market Fraud?. The order itself is best read as the regulator's response to the structural mis-match between the instrument and the channel through which it had been sold.
What did the Bombay High Court hold about the write-down?
The High Court ruled in favour of the AT-1 bondholders on the write-down itself, holding that the manner in which the AT-1 instruments had been extinguished as part of the reconstruction was open to challenge.3 The Bank, the Reserve Bank of India and the Union government separately filed Special Leave Petitions before the Supreme Court against that judgment. The Supreme Court, after extended hearings, has reserved its verdict; as at the date of this article, the final ruling was awaited.3 That question is the principal banking-law question raised by the episode, and its outcome will materially shape how AT-1 bonds are treated in future Indian bank resolutions.
What did SEBI do to stop a repeat?
It tightened the distribution side. Following the Yes Bank episode, SEBI moved to ban retail participation in AT-1 bonds, restricting these instruments to qualified institutional buyers and limiting the channels through which they can be distributed and held.4 The reasoning was straightforward: an instrument that can be written to zero on regulatory discretion is not suitable for retail investors who treat it as a near-deposit. The disclosure and suitability regime around the sale of complex debt instruments to retail investors was also reviewed, with consequential changes that have continued to evolve since.
Where does the case sit in SEBI's broader architecture?
It sits at the intersection of the disclosure rulebook and the anti-fraud rulebook, with the suitability of distribution as the operational fault line. The LODR-style disclosure framework around the bonds was tested for whether buyers had been put on real notice of the loss-absorbing feature; the PFUTP-style anti-fraud framework was used to characterise alleged active mis-selling. Where each of those sits in SEBI's machinery is set out in What Continuous Disclosure Does the Law Demand? and What Does SEBI Use to Punish Market Fraud?, and the source of SEBI's enforcement powers in this kind of matter is mapped in What Are SEBI's Real Powers?.
Why does Yes Bank AT-1 still matter?
For three reasons. It is the first large Indian event in which an AT-1 write-down moved from theoretical regulatory tool to operational reality, and it forced a generation of investors and intermediaries to take the loss-absorbing feature seriously. It is the case that prompted the structural rethink of how complex bank capital instruments are distributed to retail investors in India. And the pending Supreme Court ruling on the validity of the write-down will be the binding word on whether reconstruction schemes can extinguish AT-1 bonds in the way that the Yes Bank scheme did. For the broader empirical record of how disclosure and mis-selling matters fall across the enforcement record, see How Does India's Securities Regulator Actually Work?.
Sources & citations
- Reserve Bank of India's supersession of the Yes Bank board on 5 March 2020 and the subsequent Yes Bank Reconstruction Scheme of 13 March 2020, which included the write-down of approximately ₹8,415 crore of Additional Tier 1 bonds.
- SEBI Order against Mr. Rana Kapoor, former CEO of Yes Bank, imposing a penalty of ₹2 crore for mis-selling AT-1 bonds to retail investors as "super FDs"; SEBI's findings recorded that approximately 1,346 retail investors had invested approximately ₹679 crore in the AT-1 bonds, of whom 1,311 were existing Yes Bank customers (approximately ₹663 crore).
- The Bombay High Court's judgment in the AT-1 bondholder challenge, ruling against the write-down; Special Leave Petitions filed by Yes Bank, the Reserve Bank of India and the Union government before the Supreme Court of India; Supreme Court verdict reserved as at the date of this article.
- SEBI's subsequent regulatory measures restricting retail participation in AT-1 bonds, including limitations on the channels through which AT-1 bonds may be distributed and held.
About this article. Part of Legal Wires' SEBI Enforcement series, an analytical guide to India's securities enforcement record. This is general information and commentary, not legal advice; do not rely on it for any specific matter. Prepared with AI assistance and reviewed by the Legal Wires editorial team. Where SEBI findings are described, they are the regulator's findings as recorded in its orders and, where applicable, as modified on appeal; the AT-1 write-down challenge remains pending at the Supreme Court. Last reviewed: 28 May 2026. Spotted an error? Tell us and we will review it.