Yes Bank Q2 profit beats estimates, but Supreme Court’s AT1 bond ruling impact not booked as lender weighs further appeal

on Saturday reported a 65% year-on-year increase in its second-quarter profit to Rs 1,080 crore ($114 million), but said the figure does not reflect the impact of a Supreme Court ruling that set aside the bank’s 2020 write-off of Rs 8,400 crore ($884 million) worth of additional tier-1 (AT1) bonds. Had the impact of the ruling been recognised, the Mumbai-based lender would have reported a quarterly loss of Rs 5,217 crore, the bank said in a regulatory filing. The Supreme Court on Thursday upheld a 2023 Bombay High Court judgment that set aside the write-off, dismissing appeals filed by Yes Bank, the Reserve Bank of India (RBI) and the central government. The bank said the reported figures were indicative and subject to revision as it assessed the implications of the ruling.

Yes Bank evaluates legal options after Supreme Court ruling

Yes Bank said it was evaluating the implications of the Supreme Court’s decision, including the manner and timing of its implementation.

The lender is also considering “all legal remedies available”, including further proceedings before the Supreme Court.

The ruling relates to the write-off of Rs 8,400 crore in AT1 bonds during the bank’s 2020 restructuring. The bonds were written off by an administrator overseeing the restructuring process.

Yes Bank, a mid-sized private sector lender, was rescued in 2020 under a restructuring scheme that brought in new investors. Japan’s Sumitomo Mitsui Banking Corporation holds a 24.99% stake in the bank.

Yes Bank net worth may fall to Rs 46,970 crore

The bank said that if its financial figures were adjusted to reflect the court ruling, its net worth would decline to Rs 46,970 crore from Rs 53,268 crore.

Its borrowings would increase to Rs 86,149 crore from Rs 77,734 crore, according to the filing.

However, Yes Bank said its total capital adequacy ratio would remain unaffected at 14.5%.

In a filing on Friday, the lender had said its common equity tier-1 (CET1) ratio would decline by around 250 basis points.

The figures remain indicative and may be revised as the bank determines how to account for the implications of the court’s decision.

Yes Bank Q2 profit beats analyst estimates

Despite the potential impact of the AT1 bond ruling, Yes Bank’s reported quarterly profit exceeded analyst expectations.

Analysts had forecast a profit of Rs 955 crore, according to LSEG data, compared with the Rs 1,080 crore reported by the lender.

The bank’s net interest income, which represents the difference between interest earned on loans and interest paid on deposits, rose 22.7% year on year to Rs 2,822 crore.

Advances grew 23.7% from a year earlier, while deposits increased 19.5%.

Provisions for bad loans and other contingencies fell 24.2% to Rs 317 crore. Other income rose 14.4% to Rs 1,882 crore.

Yes Bank’s gross NPA ratio improves in September quarter

Yes Bank’s asset quality also improved during the quarter.

The gross non-performing asset (NPA) ratio stood at 1.2% at the end of September, compared with 1.3% at the end of June.

The decline indicates an improvement in the proportion of gross advances classified as non-performing assets.

What are AT1 bonds?

Additional tier-1 bonds are high-risk debt instruments issued by banks to strengthen their capital base. They can be written off or converted into equity when a bank comes under financial stress, subject to the applicable terms and regulatory framework.

Yes Bank’s Rs 8,400 crore AT1 bond write-off was part of its 2020 restructuring. The Supreme Court’s decision to uphold the Bombay High Court judgment setting aside the write-off has created uncertainty over the financial and accounting implications for the lender.

The bank is assessing the consequences of the ruling while considering its available legal options.