New Delhi, Oct. 18 -- The Supreme Court's verdict on Yes Bank's Additional Tier-1 (AT-1) bonds raises questions that extend well beyond the losses suffered by investors. It challenges the legal basis of the write-off, the design of the instrument, which was intended to absorb banking losses, and the credibility of India's resolution framework.

In setting aside the Rs.8,415 crore write-off, the court observed that the Reserve Bank of India (RBI) was a "mere bystander," allowing Yes Bank's Common Equity Tier 1 (CET-1) ratio to fall to 0.6%. It also held that making investors bear the consequences of administrative lapses would be unfair.

The judgement does not make AT-1 bonds risk-free. Nor does it invalidate their legitimate loss-absorpt...