Yes Bank quarterly profit rises as AT1 bond ruling clouds capital impact

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Yes Bank quarterly profit rise

Highlights

Yes Bank reports quarterly net profit up 65% to 10.80 billion rupees, beating the 9.55 billion rupees estimate but excluding Supreme Court AT1 bond ruling impact.
If the AT1 bond write-off reversal is applied, Yes Bank would report a 52.17 billion rupees loss, with net worth dropping to 469.70 billion rupees and borrowings rising to 861.49 billion rupees.
Core operating metrics remain strong with net interest income up 22.7% to 28.22 billion rupees, advances growing 23.7%, deposits rising 19.5%, and gross NPA ratio improving to 1.2%.

Earnings growth and court ruling exposure

As reported by Reuters, Yes Bank says net profit for the quarter rises 65% to 10.80 billion Indian rupees, above analysts' estimate of 9.55 billion rupees, but the result does not include the effect of the Supreme Court ruling delivered this week.

In a filing, the bank says that if the ruling were reflected in the quarter, it would post a loss of 52.17 billion rupees. The Mumbai-based lender adds that the figures are indicative and may be revised as it evaluates the implications, including the manner and timing of implementation.

The Supreme Court on Thursday upholds a 2023 Bombay High Court judgment that sets aside the 2020 write-off of 84 billion rupees of additional tier-1 bonds, dismissing appeals by Yes Bank, the Reserve Bank of India and the federal government. The bank says it is also weighing all legal remedies available, including further proceedings before the Supreme Court.

Balance sheet effects and operating performance

If adjusted for the ruling, Yes Bank says its net worth would fall to 469.70 billion rupees from 532.68 billion rupees, while borrowings would rise to 861.49 billion rupees from 777.34 billion rupees. Its total capital adequacy ratio would remain unchanged at 14.5%, although the lender said in a filing on Friday that its common equity tier-1 ratio would decline by about 250 basis points.

AT1 bonds are high-risk debt instruments that can be written off or converted into equity when a bank comes under financial stress. Yes Bank was rescued in 2020 under a restructuring scheme that brought in new investors, and the bonds were written off by an administrator overseeing that process. Japan's Sumitomo Mitsui Banking Corporation holds a 24.99% stake in the lender.

Core operating trends remain firm in the September quarter. Net interest income rises 22.7% to 28.22 billion rupees, advances grow 23.7% from a year earlier, and deposits increase 19.5%, while provisions for bad loans and other contingencies fall 24.2% to 3.17 billion rupees and the gross non-performing asset ratio improves to 1.2% at end-September from 1.3% at end-June.

In our earlier report on sovereign resilience in a higher-rate environment, we noted that prolonged geopolitical tensions alongside elevated public spending are increasing borrowing and refinancing risks as global funding costs stay high. We also highlighted that emerging and frontier markets are especially exposed because interest-service burdens are often heavy relative to narrower revenue bases, while energy and food price shocks can worsen inflation and strain public finances.

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