# AT1 Bonds Explained: Basel III Capital and the Yes Bank Write-Off Ruling

By Shivam Singh, Founder & Mentor, Minimalist IAS · Published 17 Oct 2026
Source: https://www.minimalistias.com/blog/at1-bonds-yes-bank-write-off-supreme-court-basel-iii-upsc

> The Supreme Court has upheld the quashing of Yes Bank's ₹8,415-crore AT1 write-off. A UPSC explainer on what AT1 bonds are, RBI's Basel III capital minimums, AT1 vs Tier 2, the loss order and the Credit Suisse parallel.

**AT1 (Additional Tier 1) bonds are perpetual bank bonds that count as Tier 1 capital and can be written down or converted into equity when a bank is in trouble.** The Supreme Court has now upheld the quashing of Yes Bank's ₹8,415-crore AT1 write-off, holding that a rescue scheme must itself authorise such a write-down.

> **Why in news:** The Supreme Court dismissed the appeals against the Bombay High Court's 2023 judgment, which had quashed the 2020 write-off of Yes Bank's AT1 bonds.

## Key facts at a glance

- **Amount:** ₹8,415 crore of AT1 bonds written to zero in March 2020.
- **Ground:** the final Reconstruction Scheme, 2020 (Section 45, Banking Regulation Act) had no write-down clause; the administrator could not add one.
- **Courts:** High Court quashed it in 2023; the Supreme Court stayed that order, and has now dismissed the appeals.

## What are AT1 bonds and where do they sit in the Basel III capital stack?

To see what the Court protected, start with where AT1 sits in a bank's capital.

*Figure: Bar chart of RBI's Basel III minimums as a share of risk-weighted assets: CET1 5.5%, AT1 up to 1.5%, Tier 2 up to 2%, and a 2.5% Capital Conservation Buffer, giving Tier 1 7%, total 9% and 11.5% with the buffer.*

- **Basel III:** the Basel Committee's post-2008 standard; the RBI phased it in from April 2013.
- **CET1:** equity and reserves; minimum 5.5% of risk-weighted assets (RWAs); absorbs losses first.
- **AT1:** perpetual; up to 1.5% inside the 7% Tier 1 minimum; the bank may cancel the coupon, and a skipped coupon is never made up.
- **Loss absorption:** written down or converted into equity at a trigger (CET1 of at least 6.125%) or at the point of non-viability (PONV).
- **Tier 2 and buffer:** dated bonds, up to 2%; the 2.5% Capital Conservation Buffer (CCB), held in CET1, lifts the total to 11.5%.

## AT1 bonds vs Tier 2 bonds: who loses first?

Capital that can be written down needs a queue, and seniority sets it. **Think of a row of fuses:** equity blows first, then AT1, then Tier 2; the depositors' circuit must never trip.

| Point | AT1 bonds | Tier 2 bonds |
| --- | --- | --- |
| Counts as | Tier 1 (going-concern) capital | Tier 2 (gone-concern) capital |
| Maturity | Perpetual; call after five years, with RBI approval | Dated; minimum five years |
| Claim in liquidation | Above equity; below Tier 2 and depositors | Above AT1; below depositors and general creditors |
| Loss absorption | Trigger (CET1 at least 6.125%) or PONV | PONV |

## Why did the Supreme Court uphold the quashing of Yes Bank's AT1 write-off?

That design is what the Court measured the 2020 write-off against.

*Figure: Timeline of the Yes Bank AT1 case: moratorium in March 2020, Reconstruction Scheme notified days later with no write-down clause, AT1 bonds of ₹8,415 crore written to zero the next day, High Court quashes it in 2023, Supreme Court dismisses appeals in 2026.*

- **Sequence:** moratorium in March 2020; a Section 45 scheme days later; AT1 bonds written to zero the next day.
- **Scheme text:** the final scheme left out the write-down clause considered in drafting; the administrator could not add it himself.
- **Tests applied:** the scheme, the RBI Master Circular and the bonds' own terms.
- **Equity vs bonds:** bondholders lost everything; shareholders kept their shares, 75% locked in for three years.

## What do SEBI's curbs and the Credit Suisse case add?

The episode changed who may hold AT1 bonds, and it was not unique.

- **SEBI, 2020:** only qualified institutional buyers (QIBs) may subscribe; minimum allotment and trading lot ₹1 crore.
- **Credit Suisse, 2023:** FINMA wrote down about CHF 16 bn of AT1 bonds while shareholders received UBS shares.
- **Swiss court, 2025:** found the write-down lacked a sufficient legal basis; FINMA's appeal is pending.

## Prelims traps

> **1. AT1 is Tier 1, not Tier 2: perpetual, up to 1.5%. Tier 2 is dated, minimum five years, up to 2%.**

> **2. 5.5%, 7% and 9% exclude the 2.5% buffer; with it, total capital is 11.5%. Basel III's own total minimum is 8%.**

> **3. The Court did not ban AT1 write-downs; it quashed this one for want of authority in the scheme.**

> **4. The RBI, not the bank, decides when PONV is reached.**

## Why it matters for UPSC

**GS Paper III** (banking, mobilisation of resources). **Prelims:** capital ratios, AT1 vs Tier 2, PONV. **Mains:** stability against creditor rights and the rule of law in resolution; cite the FRDI Bill, 2017, withdrawn in 2018 over its 'bail-in' clause. On RBI's ownership rules, see the [IDBI Bank sale](https://www.minimalistias.com/blog/idbi-bank-strategic-sale-fairfax-disinvestment-upsc).

## Mentor's note

- **Don't write that AT1 write-downs are now illegal.** The Court demanded authority in the scheme; PONV loss absorption stays.
- **Know 5.5/7/9 and 2.5.** UPSC asked about the capital adequacy ratio in Prelims 2018.
- **In Mains, argue two ways:** loss absorption must work; the power must be written in the text.

## Recall in 60 seconds

- **What are AT1 bonds?** Perpetual Tier 1 bonds with cancellable coupons.
- **RBI minimums?** CET1 5.5%, Tier 1 7%, total 9%; 11.5% with buffer.
- **Loss order?** Equity, AT1, Tier 2, then depositors.
- **Why quashed?** The final scheme had no write-down clause.

## Practice: Prelims MCQ

**Consider the following statements:**

**Statement-I: AT1 bonds issued by Indian banks can be written down or converted into equity while the bank is still a going concern.**

**Statement-II: In the liquidation of a bank, AT1 bondholders have a senior claim over Tier 2 bondholders.**

Which one of the following is correct in respect of the above statements?  
(a) Both Statement-I and Statement-II are correct and Statement-II explains Statement-I  
(b) Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I  
(c) Statement-I is correct, but Statement-II is incorrect  
(d) Statement-I is incorrect, but Statement-II is correct

**Answer: (c) Statement-I is correct, but Statement-II is incorrect**

**Explanation:**

**Statement-I is correct:** AT1 is written down or converted at a pre-specified trigger (CET1 of at least 6.125% of RWAs) or at PONV.

**Statement-II is incorrect:** AT1 ranks below Tier 2 and depositors in liquidation, above only equity.

**Related PYQ (Prelims):**  
**UPSC CSE Prelims 2018:**  
**Consider the following statements:**  
**1. Capital Adequacy Ratio (CAR) is the amount that banks have to maintain in the form of their own funds to offset any loss that banks incur if the account-holders fail to repay dues.**  
**2. CAR is decided by each individual bank.**  
Which of the statements given above is/are correct?  
(a) 1 only  
(b) 2 only  
(c) Both 1 and 2  
(d) Neither 1 nor 2  
**Answer: (a) 1 only**  
The RBI sets the minimum, not each bank: 9% of RWAs, or 11.5% with the buffer.

**See the detailed explanations:** [Prelims 2018](https://www.minimalistias.com/pyqs/prelims/2018) in the free PYQ vault, with year-wise analysis. Free to browse; free sign-up to download.

## Practice: Mains question

> **In the light of the Supreme Court's ruling on Yes Bank's AT1 write-off, critically examine how India's bank-capital rules and resolution powers can protect financial stability without undermining creditor rights. (Answer in 250 words; 15 Marks)**

## Terms to know

- **PONV:** point of non-viability, when the RBI judges a bank cannot survive without capital support
- **RWAs:** risk-weighted assets, the base for every capital ratio
- **CCB:** Capital Conservation Buffer, an extra 2.5% of RWAs held as CET1
- **QIB:** qualified institutional buyer, such as a mutual fund or insurer

## Frequently asked questions (FAQs)

### What are AT1 bonds?

AT1 (Additional Tier 1) bonds are perpetual bonds issued by banks that count as Tier 1 capital. The bank can cancel their coupons, and they are written down or converted into equity at a trigger or PONV.

### Why did the Supreme Court uphold the quashing of Yes Bank's AT1 write-off?

The final Reconstruction Scheme, 2020 had no clause allowing a write-down, and the administrator could not add one. The Court left AT1 loss absorption intact but required legal authority.

### What is the difference between AT1 and Tier 2 bonds?

AT1 bonds are perpetual, count in Tier 1 up to 1.5% of RWAs and rank below Tier 2. Tier 2 bonds are dated, with a five-year minimum maturity, and count up to 2%.

### What is the minimum capital adequacy ratio for banks in India?

The RBI requires CET1 of 5.5%, Tier 1 of 7% and total capital of 9% of RWAs, plus a 2.5% buffer in CET1. With the buffer, total capital must be 11.5%.

## Related reading

- [IDBI Bank strategic sale: disinvestment vs privatisation and RBI rules](https://www.minimalistias.com/blog/idbi-bank-strategic-sale-fairfax-disinvestment-upsc)
- [The RBI's calibrated tightening and the repo rate hike](https://www.minimalistias.com/blog/rbi-repo-rate-hike-calibrated-tightening): the RBI's monetary role beside its role as bank regulator
- [Practise previous-year Economy questions in the free PYQ vault](https://www.minimalistias.com/pyqs)
- [Revise this month's current affairs in The Monthly Compass](https://www.minimalistias.com/resources/magazine)
- [All Daily UPSC Briefs](https://www.minimalistias.com/resources/daily-brief)

## Sources

- [RBI: Commercial Banks (Prudential Norms on Capital Adequacy) Directions, 2025](https://www.rbi.org.in/SCRIPTs/BS_ViewMasDirections.aspx?id=13159)
- [RBI: Master Circular on Basel III Capital Regulations (2014)](https://www.rbi.org.in/commonman/Upload/English/Notification/PDFs/114BI010714FL.pdf)
- [SEBI: circular on AT1 instruments (October 2020)](https://www.sebi.gov.in/sebi_data/attachdocs/aug-2022/1659349729343.pdf)
- [Bar and Bench: Supreme Court upholds quashing of Yes Bank's AT1 write-off (2026)](https://www.barandbench.com/news/litigation/supreme-court-upholds-quashing-of-yes-banks-8415-crore-at1-bond-write-off)
- [FINMA: appeal against the Federal Administrative Court's AT1 decision (2025)](https://www.finma.ch/en/news/2025/10/20251015-meldung-bvger-at1/)
- [BIS: Basel III framework](https://www.bis.org/bcbs/basel3.htm)

From [The Daily UPSC Brief](https://www.minimalistias.com/resources/daily-brief), 16 October 2026 — by Shivam Singh.

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