Yes Bank Sees Core Capital Adequacy Fall 240 Basis Points After AT1 Bond Restoration
Key Facts
Yes Bank estimated that reinstating the principal of its Additional Tier 1 (AT1) bonds would lower its Common Equity Tier 1 ratio by about 240 basis points to 11.4%, based on a hypothetical assessment of the bank’s position on September 30, 2026. The bank said its overall Tier 1 capital ratio would remain near 13.7%. The estimate follows the Indian Supreme Court’s October 15 decision upholding the reversal of the bond write-off. The chief financial officer said reinstatement would begin with an accounting adjustment, without immediate repayment or cash outflow from the borrowing. He added that the timing and method of the treatment, along with the coupons, remained under review.
The Supreme Court overturned the bond write-off, upholding a Bombay High Court ruling issued on January 20, 2023. The ruling followed challenges to the local court’s decision to overturn the write-off. The Supreme Court said the bank’s final restructuring plan did not contain a provision authorizing the bonds to be written off. The decision leaves the bank needing to reinstate the bonds’ principal on its balance sheet while assessing the impact on its capital ratio. But the CFO distinguished the accounting adjustment from an immediate cash outflow, saying: "There is no repayment and no cash outflow because of the borrowing; it is just an accounting restatement we have to make."
A separate issue concerns coupons that fell due after the ruling. An annual coupon of 9% on one bond tranche fell due on October 18, three days after the Supreme Court ruling. Bondholders said they had not received the payment and asked trustee Axis Trustee to seek clarification from the bank. They also asked whether the October coupon had been paid, cancelled or remained due. Reuters reported that the bond documents give the bank discretion over coupon payments, and that this issue may be considered after the bonds are reinstated on the balance sheet.
The bank faces another due date in the matter on December 23, when an annual coupon of 9.5% on another tranche of AT1 bonds is due. Bondholders have sought clarification on how the payment will be handled before that date. The bank says it is assessing the implications of the ruling, including the method and timing of implementation, while weighing available legal remedies, including further proceedings before the Supreme Court. The status of the coupons remains tied to the accounting treatment of the bonds and contractual terms that give the bank discretion over payment. The December coupon date gives the bank another milestone to clarify how it will apply the ruling.
The ruling came as the bank continued to expand lending, reporting 23.7% year-on-year growth in loans and advances in the September quarter. Excluding foreign-currency loans linked to FCNR(B) deposit mobilisation, adjusted loan growth was 17.6%. Net interest margin, meanwhile, fell to 2.6% in the same quarter. Management said it expects the margin to remain broadly stable in the December quarter before improving toward March 2027. These indicators place the capital impact of restoring the bonds in the context of operating performance that combines lending growth with margin pressure.
The ruling quickly affected the stock: Yes Bank shares fell 14.43% and closed at 18.15 rupees on October 16, a day after it was issued. S&P Global Ratings management said the ruling would not affect the bank’s rating, despite the possibility of pressure on future earnings. The agency expects the risk-adjusted capital ratio to remain between 8% and 8.5% through March 2028. According to a Reuters report, losses accumulated in fiscal years 2020 and 2021 are not expected to be fully offset until fiscal 2028, which could affect the coupon-payment decision. This keeps capital and earnings trajectories central to assessing the ruling’s implications, alongside the schedule of bond maturities.