MUMBAI: The reinstatement of Yes Bank’s ₹8,415 crore of additional Tier 1 (AT1) bonds that were written down in 2020 will not entail a cash outflow on the principal, managing director and chief executive officer Vinay Tonse said, describing the exercise as a balance-sheet adjustment.
Tonse also said the mid-sized private sector bank has room to pursue growth without immediately raising capital following the Supreme Court’s ruling. The reinstatement would involve restoring the liability on the balance sheet using the bank’s core reserves, subject to its assessment of the judgment’s implications and implementation, Tonse said during its September quarter analyst call.
“The principal reinstatement of the , as I said earlier, is in substance a balance sheet change from the reserves to the borrowings, which is in terms of classifications. There is no repayment, no cash outflow on the borrowing,” Tonse said.
reported a net profit of ₹1,080 crore in the quarter ended September, up 65% on year. While the bank has not incorporated the judgment’s financial impact in the September quarter earnings, its pro forma calculations showed that recognizing the estimated impact would have resulted in a net loss of ₹5,217 crore in the quarter.
The bank is still assessing the consequences of the Supreme Court’s 15 October judgment, which upheld the Bombay high court’s 2023 decision to set aside the March 2020 write-down of the AT1 instruments worth ₹8,415 crore.
The reinstatement is expected to reduce the bank’s common equity tier-1 (CET1) capital ratio by about 240 basis points to 11.4% on a pro forma basis as against 13.7% as of September end. The overall Tier-I capital ratio is expected to remain about 13.7%, according to the management’s assessment. However, return on assets will erode to -4.3% from 0.9% as of 30 September.
Room to grow
Tonse said the lower CET1 ratio would still leave the bank with headroom to pursue growth, although capital-raising remains under consideration.
“However, once we conclude the assessment with a CET1 pro forma at 11.4%, we do believe that it still allows us headroom to continue to grow,” he said, adding that the bank would want its capital levels to be more comfortable.
CET1 is a bank’s highest-quality, core regulatory capital that absorbs financial losses immediately without forcing the bank to cease operations. Introduced under the Basel III framework, it acts as the primary safety cushion to protect depositors and maintain financial stability.
Japan’s Sumitomo Mitsui Banking Corp (SMBC) bought a 24.22% stake in Mumbai-based Yes Bank last year.
The management said it was evaluating the judgment’s implications, potential legal remedies and capital-raising options as separate matters. It has not announced a final decision on raising fresh capital or the timing of any further legal proceedings.
The lender’s operating performance remained strong. Net interest income rose 23% on year to ₹2,822 crore, while advances grew 24% to ₹3.1 trillion and deposits increased by 20% to ₹3.54 trillion at the end of September.
However, the net interest margin moderated to 2.6%, down 10 basis points from the previous quarter, largely because of the scale of the equivalent of ₹18,575 crore raised in in the quarter. It had about ₹15,000 crore in equivalent foreign-currency term loans, part of which remained undeployed, the management said.
“We will work to continue to deploy the credit in Q3 and Q4. In addition, we believe that with the interest rates actually increasing, it should have a positive bias on the margins going in. So that’s one area that we will continue to observe,” the management said.