A bail-in is a bank resolution mechanism in which a failing financial institution's losses are absorbed by its creditors and shareholders — through forced write-downs of debt or conversion of debt into equity — rather than by government taxpayer funds as in a traditional bailout. The bail-in approach places the burden of bank failure on those who chose to invest in or lend to the institution, preserving taxpayer money and improving market discipline. In India, the bail-in concept is most directly relevant in the context of AT1 (Additional Tier 1) bonds — perpetual, loss-absorbing capital instruments issued by Indian banks under RBI's Basel III capital framework. AT1 bonds can be written down to zero or converted to equity when a bank's Common Equity Tier 1 (CET1) ratio falls below a specified trigger level — as demonstrated most dramatically by the complete write-down of Yes Bank's AT1 bonds in March 2020 during the RBI-led rescue. The Yes Bank episode was a landmark event for Indian AT1 bond investors — prior to this, many retail investors who had purchased AT1 bonds through their banks' distribution networks were unaware of the full bail-in risk embedded in these instruments, which are fundamentally different from senior secured bank bonds or fixed deposits.
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