YES Bank sees 250 bps hit on AT1 revival

However, its Tier 1 capital ratio is expected to remain unchanged at 14%. YES Bank reported a CET1 ratio of 14% and a capital adequacy ratio of 15.1% at the end of June. CET1, a bank’s highest-quality capital, acts as the first line of defence against losses during financial stress. The regulatory minimum CET1 requirement is 5.5%, excluding additional buffers. The apex court ruled that the bank’s administrator lacked the authority to extinguish the instruments under the reconstruction scheme.

It also said the annual coupon payments would remain unaffected by the outcome of the appeals. YES Bank said it was examining the judgment and its implications and would make further disclosures in due course. The bank’s share price continued to fall. It closed on Friday at Rs 17.50, down 3.42%. Yesterday, the share price had plunged over 14% after the supreme court ruling. S&P Global Ratings said it did not expect the ruling to affect its ratings on the bank, although the reinstatement of the bonds would weigh on future earnings.

“We expect YES Bank to remain adequately capitalised, with its risk-adjusted capital (RAC) ratio projected to remain within the 8.0%-8.5% range throughout the fiscal years ending March 31, 2027 and 2028, compared with 9.0% as of March 2026,” the rating agency said. S&P said the estimated Rs 8,400-crore reduction in common equity would be largely offset by the reinstatement of AT1 instruments of a similar amount.

Consequently, it did not anticipate any meaningful impact on the bank’s total adjusted capital. “Going forward, we see this as earnings negative as the AT1s have high coupon payments of 9.0%-9.5%,” it said. The ruling brings to a close a six-year legal battle that began when YES Bank’s AT1 bonds were written off in March 2020 as part of a reconstruction exercise to rescue the financially distressed lender.

Bondholders challenged the move, and the Bombay High Court quashed the write-off in January 2023. The Supreme Court has now upheld that decision. The development also comes after Japan’s Sumitomo Mitsui Banking Corporation (SMBC) acquired a 20% stake in YES Bank for Rs 13,483 crore in May 2025. Abizer Diwanji, founder of NeoStrat Advisors, said the bank would now have to issue additional shares to AT1 bondholders, as had been agreed at the time of restructuring.

“There would be a cost, but that would only be fair,” he said. Diwanji argued that existing shareholders had traded in YES Bank shares knowing that the AT1 bond dispute remained unresolved and, therefore, could not claim that any resulting dilution was unjustified. The same principle would apply to the bank’s largest shareholder, unless the share purchase agreement specifically provided protection against such a contingency, he added.