The verdict could also unlock roughly ₹1,346 retail investors’ holdings and substantial institutional recoveries, reshaping expectations for investors who had long written off these bonds

Nearly six years after many investors had written off any hope of recovery, the Supreme Court’s verdict on YES Bank’s ₹8,415 crore additional tier-1 (AT1) bonds has brought major relief to mutual funds, financial institutions and retail investors.

The Supreme Court on Thursday upheld the Bombay High Court’s 2023 order that quashed the YES Bank administrator’s decision to write down the AT1 bonds during the bank’s 2020 reconstruction. With recovery now looking increasingly likely, mutual funds are moving swiftly to protect investors who held units in schemes exposed to the bonds at the time of the write-down.

Nippon India Mutual Fund and Kotak Mahindra Mutual Fund, which had marked down their AT1 bond holdings to zero, have temporarily halted fresh subscriptions in certain debt schemes that still hold exposure to the securities. The move aims to prevent new investors from benefiting from a potential windfall that rightfully belongs to existing unitholders.

“We were holding YES Bank AT1 bonds in the Nippon India Retirement Fund Wealth Creation Scheme, which was not segregated and was valued at nil after the RBI had passed an order to write them off,” Nippon India Mutual Fund said.

“We await further details on the operationalisation of the order as the valuation aspect remains unclear,” it added.

Kotak Mahindra AMC has taken a similar approach to the unexpected recovery from the AT1 bonds. Kotak Mahindra Mutual Fund had about ₹2,680 crore in exposure to the bonds, while Nippon India Mutual Fund’s exposure stood at around ₹2,150 crore.

Debt schemes

In contrast, Franklin Templeton had adopted a different approach when the crisis unfolded in March 2020. The fund house, which had about ₹590 crore in exposure to bonds across three debt schemes, created a segregated portfolio on March 6, 2020, and issued separate units to investors who held the schemes on that date.

“Any amounts realised from these bonds will be distributed to unit-holders of the respective segregated portfolios in proportion to their holdings,” Franklin Templeton said.

According to Aakanksha Shukla, AVP-Wealth Management at Master Capital Services, investors who entered the schemes after the write-down should not be entitled to the recovery proceeds. However, without restrictions, they could potentially benefit from the recovery, which explains why some fund houses have suspended fresh subscriptions.

“The distribution of proceeds will be easier for debt funds that ring-fenced the troubled bonds through a segregated portfolio,” she said.

Apart from mutual funds, several institutional investors also stand to gain from the ruling. Sammaan Capital expects to recover about ₹662 crore, while 63 Moons Technologies could recover nearly ₹300 crore.

Relief for investors

The ruling has also brought relief to retail investors. Around 1,346 retail investors held AT1 bonds worth about ₹679 crore. Of these, 1,311 were existing YES Bank customers, including retired employees, senior citizens, and homemakers, with investments totalling about ₹663 crore.

“The Supreme Court verdict is an eye-opener for regulators that they cannot wriggle out of their responsibilities simply by writing off a problem that should have been identified at a much earlier stage,” said Kuldip Singh, a retired bank executive who invested in the AT1 bonds in 2020.

The AT1 bonds, which offered a coupon of 9-9.5 per cent and required a minimum investment of ₹1 crore, had attracted investors seeking a steady annual income. After the Supreme Court’s ruling, many may finally see a recovery from an investment they had long considered lost.

Published on October 16, 2026