AT1 bonds pay more because they can be written off

What is an AT1 bond, and why does it pay more?

An Additional Tier 1 (AT1) bond is a perpetual bond a bank issues to count as regulatory capital. Perpetual means it has no maturity date. In return for a higher coupon, the holder agrees that the bond can absorb the bank's losses when specified triggers are breached, including when the lender becomes non-viable.

Business Today, citing Bloomberg, describes these bonds as ranking below other debt securities in a bank failure. That is the whole bargain. The extra coupon is the price of a clause that can take the principal away.

Take a ₹50 lakh holding in a series with a 9.5 percent coupon. Annual coupons come to ₹4.75 lakh. If the principal is written off, the loss is ₹50 lakh, which equals about 10.5 years of coupons (₹50 lakh divided by ₹4.75 lakh). The coupon looks generous until you divide the loss by it.

What did the Supreme Court decide on 15 October 2026?

On 15 October 2026 the Supreme Court upheld the Bombay High Court's order quashing the write-off of ₹8,415 crore of Yes Bank AT1 bonds, according to Value Research. The High Court had quashed it in January 2023, and the Supreme Court had stayed that order in March 2023 while it heard the appeal.

The reasoning that Value Research reports is procedural. The draft reconstruction scheme provided for a write-off. The final scheme, effective 13 March 2020, did not. The administrator extinguished the bonds on 14 March.

Value Research also sets a limit on the ruling. The decision concerns the legality of this particular write-off. It does not settle whether AT1 instruments can ever absorb losses.

Why is "AT1 bonds are now safe" the wrong reading?

The common reading is that bondholders won and the instrument is therefore safer. Half of that is true. These bondholders won, on the question of whether the 2020 scheme authorised the write-off.

The loss-absorbing clause is still in the terms of every AT1 bond. What the case adds is a second question to ask before you buy one. Under what authority can the loss be imposed, and is that authority written down before the bond is issued? A coupon of 9.5 percent tells you the clause exists and leaves open who can use it and how.

Business Today quotes Venkatakrishnan Srinivasan of Rockfort Fincap saying the ruling could bolster investor confidence in legal protections while creating uncertainty over future write-downs, which may raise banks' borrowing costs. He also pointed to the need for clearer regulatory rules. The bond market is pricing a legal question that is still open.

For scale, Finance Ministry records cited in the proceedings show AT1 bonds worth ₹1,02,466 crore and Tier-2 bonds worth ₹1,92,702 crore outstanding as of 31 December 2022. Public-sector banks, led by the State Bank of India, issued most of them. The Yes Bank case was the first write-off of its kind in India, so the precedent reaches well beyond one lender.

Why did Yes Bank's shares fall after the ruling?

Yes Bank's shares fell 14.5 percent on 15 October 2026 and closed at ₹18.12, the lowest since April 2005, as Business Today reports, citing Bloomberg. The bond is the claim that was reopened, so the share price is where the cost shows up.

Value Research lays out why. Overturning the write-off does not by itself mean an immediate repayment of ₹8,415 crore. AT1 bonds have no fixed maturity and, if reinstated as eligible AT1 instruments, could continue as regulatory capital. CRISIL had estimated in August 2026 that full reinstatement could cut the bank's Common Equity Tier 1 ratio by 2.3 to 2.5 percentage points. A matching rise in AT1 capital would offset it, and total capital adequacy would stay unchanged.

Then the arithmetic reaches ordinary shareholders. Value Research puts the disputed principal at 16.1 percent of the bank's June 2026 net worth of ₹52,338 crore. If all of it reduced shareholders' equity, adjusted book equity would fall to ₹43,923 crore. The publication is explicit that this is a sensitivity, not a confirmed accounting adjustment.

A write-off that flattered earnings in 2020 has been reopened, and the owners of the equity are exposed to the reopening. Who absorbs a bank's loss first depends on the instrument, and on the authority that applies it.

What should a holder check before buying a bond for its yield?

Five checks fit on one page, and a document answers each of them.

First, find the loss-absorption trigger in the offer document and read it in full. Second, find who decides that the trigger has been met, and under which law or scheme. Third, read where the bond ranks relative to equity in a failure. Fourth, check whether the coupon is discretionary, since Value Research notes the Yes Bank coupons are discretionary and not guaranteed interest. Fifth, size the position so that a full write-off is a loss you planned for.

Run the fifth check with the example above. On a ₹1 crore portfolio, a ₹50 lakh holding in one AT1 series puts half of everything behind a single clause. Three percent of the portfolio, ₹3 lakh, would turn the same event into a line in a review meeting.

What does this have to do with crypto?

The question is the same one: what exactly are you a claim on, and who can change the terms?

A bank's AT1 holder and a crypto holder both depend on documents that state what is held and in whose name. For a basket on Qatobit, the facts to read are the published methodology, institutional custody and a live Proof of Reserves available at any time. Each is published so a holder can read it.

For the platform-side checks, how to read a proof-of-reserves attestation walks through what a reserves report shows and omits. To see the rule that decides a basket before you invest in QSI Growth, read the QSI Growth methodology.

Read here: Business Today on the ruling and Value Research on what it means for shareholders. Both were published on 15 October 2026 and read for this piece.

Frequently asked questions

What is an AT1 bond?

An Additional Tier 1 bond is a perpetual bank bond that counts as regulatory capital and can absorb losses when specified triggers are breached. It pays a higher coupon than ordinary bank debt because of that loss clause.

What did the Supreme Court decide about Yes Bank's AT1 bonds?

On 15 October 2026 the Supreme Court upheld the Bombay High Court's quashing of the ₹8,415 crore write-off of Yes Bank's AT1 bonds. Value Research reports that the decision concerns this write-off and not whether AT1 bonds can ever absorb losses.

Does the ruling mean AT1 bonds can never be written off?

No. The reports state that the ruling concerns the legality of one write-off. Whether and how any future write-off is authorised remains a question for each bond's terms and the scheme or law under which a regulator acts.

Why did Yes Bank's share price fall after the ruling?

The reopened liability sits ahead of shareholders. Yes Bank's shares fell 14.5 percent to ₹18.12 on 15 October 2026. Value Research notes the disputed principal equals 16.1 percent of the bank's June 2026 net worth of ₹52,338 crore, though it calls that a sensitivity and not a confirmed adjustment.

How much of a portfolio should sit in one AT1 bond?

That is a sizing decision. Size it as a loss you could absorb. A ₹50 lakh holding written off is a ₹50 lakh loss, about 10.5 years of coupons at 9.5 percent.

Crypto investments are subject to market risk. Not financial advice.