YES Bank Q2 PAT up 65%, AT-1 ruling poses Rs 5,217-cr loss threat
YES Bank posted a 65% rise in Q2 net profit to Rs 1,080 crore on lower provisions, but a Supreme Court order on AT-1 bonds creates a potential proforma loss of Rs 5,217 crore.
YES Bank on Saturday reported a 65% year-on-year (y-o-y) rise in standalone net profit to Rs 1,080 crore for the quarter ended September, compared with Rs 654 crore in the corresponding period last year, aided by higher interest income and lower provisions. The profit exceeded Bloomberg's estimate of Rs 1,009 crore. However, the bank said the financial impact of the recent Supreme Court's judgment setting aside the write-down of Rs 8,415 crore worth of additional tier-1 (AT-1) bonds has not been recognised in its reported earnings.
Had the estimated impact been accounted for, the bank would have reported a net loss of Rs 5,217 crore for the quarter, according to proforma figures disclosed in its regulatory filing. Net interest income (NII) rose 22.7% year-on-year to Rs 2,822 crore, marginally below Bloomberg's estimate of Rs 2,882 crore. Other income increased 14.4% to Rs 1,882 crore, while operating profit rose 29.4% to Rs 1,678 crore.
Provisions and contingencies declined 24.2% to Rs 317 crore from Rs 419 crore a year ago. Asset quality improved during the quarter, with the gross non-performing asset (NPA) ratio declining to 1.2% from 1.3% in the preceding quarter. The net NPA ratio stood at 0.2%, unchanged on a sequential basis. On the business front, advances grew 23.7% y-o-y to Rs 3.09 lakh crore as of September-end, while deposits rose 19.5% y-o-y and 12.2% sequentially to Rs 3.54 lakh crore, partly aided by FCNR(B) mobilisation of Rs 18,575 crore.
Excluding foreign currency term loans linked to FCNR(B) deposits, credit growth stood at 17.6% y-o-y. Retail and branch-led deposits grew 20.9% y-o-y, while the CASA ratio declined to 30% from 33.7% a year ago. Net interest margin (NIM) stood at 2.6%, compared with 2.7% in the preceding quarter. AT-1 bond judgment impact In its exchange filing, YES Bank said it is evaluating the implications of the Supreme Court's October 15 judgment, which upheld the Bombay High Court's January 2023 decision setting aside the write-down of AT-1 bonds undertaken during the bank's reconstruction in March 2020.
“The Bank is presently evaluating the consequential implications of the judgment, including the decisions and actions required to give effect to it, the manner and timing of implementation, and the resulting financial and accounting implications,” the lender said. The bank is also consulting its legal advisers to evaluate all available legal remedies, including further proceedings that may be maintainable before the Supreme Court.
Pending this assessment, the lender has not recognised the potential financial impact of the judgment in its books or incorporated it into the financial results for the quarter and half-year ended September 30. According to the bank's indicative proforma calculations, recognising the estimated impact would turn its reported quarterly profit of Rs 1,080 crore into a loss of Rs 5,217 crore. For the first half of FY27, the reported profit of Rs 2,151 crore would turn into a loss of Rs 4,146 crore.
The bank's net worth would decline by Rs 6,298 crore to Rs 46,970 crore from the reported Rs 53,268 crore, while borrowings would increase to Rs 86,149 crore from Rs 77,734 crore. Its annualised return on assets would fall to a negative 4.3% for the September quarter, compared with the reported positive 0.9%. However, the bank's capital adequacy ratio would remain unchanged at 14.5%, according to the proforma calculations.
The bank cautioned that these figures are indicative and unaudited and do not represent its reported financial position. They remain subject to revision depending on consequential actions, further legal assessment and the appropriate accounting treatment. The dispute dates back to March 2020, when YES Bank's then administrator wrote down two tranches of AT-1 bonds issued in 2016 and 2017 as part of the lender's reconstruction.
Bondholders challenged the decision, following which the Bombay High Court set aside the write-down in January 2023. The Supreme Court on Thursday dismissed appeals filed by YES Bank, its administrator, the Reserve Bank of India and the Union government, upholding the High Court's decision. The bank said any consequential financial impact, including changes to regulatory and financial ratios, would be recognised in accordance with applicable accounting requirements, depending on further legal developments and the determination of appropriate accounting treatment.
Separately, the board of the bank has approved the appointment of Paul Verghese Parambi as an additional (Independent) Director of the bank for a period of four years with effect from November 6, subject to shareholder approval.
