Yes Bank on Saturday posted a significant 65% year-on-year increase in its second-quarter profit, reaching Rs 1,080 crore. Despite the positive performance, which surpassed analyst expectations, the bank clarified that these figures do not account for the financial implications of a recent Supreme Court ruling that set aside the lender’s 2020 write-off of Rs 8,400 crore worth of additional tier-1 (AT1) bonds.
In a regulatory filing, the Mumbai-based lender acknowledged that had the impact of the court ruling been incorporated into the current results, the bank would have instead reported a quarterly loss of Rs 5,217 crore. The Supreme Court had ruled on Thursday to uphold a 2023 Bombay High Court judgment that invalidated the write-off, effectively dismissing appeals previously filed by Yes Bank, the Reserve Bank of India, and the central government.
The bank is now in the process of evaluating the full implications of the Supreme Court's decision, specifically regarding the timing and methodology for implementation. According to the filing, the lender is exploring all available legal remedies, including the possibility of further proceedings before the Supreme Court. Consequently, the reported financial figures remain indicative and subject to potential revision as the bank determines the appropriate accounting adjustments.
The legal dispute stems from the bank’s 2020 restructuring scheme, during which the Rs 8,400 crore AT1 bonds were written off by an administrator. This restructuring period was critical for the survival of the mid-sized private sector lender, which saw the induction of new investors, including Japan's Sumitomo Mitsui Banking Corporation, which currently holds a 24.99% stake.
Adjustments reflecting the court's decision would have significant balance sheet consequences. The bank stated that its net worth would drop from Rs 53,268 crore to Rs 46,970 crore if the figures were adjusted today. Similarly, its borrowings would increase to Rs 86,149 crore from the reported Rs 77,734 crore. However, the bank noted that its total capital adequacy ratio would remain unaffected at 14.5%, although its common equity tier-1 (CET1) ratio would see a decline of approximately 250 basis points.
Despite the looming uncertainty, the bank’s operational performance showed strength during the September quarter. Analysts had predicted a profit of Rs 955 crore, a target the bank exceeded by reporting Rs 1,080 crore. The bank's net interest income—the margin between interest earned on loans and interest paid on deposits—saw a robust growth of 22.7% compared to the previous year, standing at Rs 2,822 crore.
Asset quality also exhibited improvement during the period. The gross non-performing asset (NPA) ratio improved to 1.2% by the end of September, a marginal improvement from the 1.3% recorded at the end of June. Additionally, total advances grew by 23.7%, while deposit levels rose by 19.5% over the same period. Provisions set aside for bad loans and other contingencies were reduced by 24.2% to Rs 317 crore, further bolstering the reported quarterly results.
The bank continues to monitor the evolving situation regarding the AT1 bonds, which are high-risk debt instruments used by financial institutions to fortify their capital base. As Yes Bank prepares for the next phase of its financial reporting, the focus remains on navigating the legal complexities introduced by the Supreme Court’s recent intervention.
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