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EconomyBanking

YES Bank's profit jumps 65% but the AT-1 ruling would turn it into a ₹5,200 crore loss

The lender earned ₹1,080 crore in the September quarter and beat forecasts. Its auditors qualified the results because they leave out the Supreme Court's revival of ₹8,415 crore of bonds.

From the editorial desk · MumbaiPublished
Mumbai's Lower Parel business district at night (file photo)
Mumbai's Lower Parel business district at night (file photo)Photo: Whoeverblocksmeisamotherfu*ker / Wikimedia Commons, CC BY-SA 4.0

Key points

  1. YES Bank's standalone net profit rose 65% to ₹1,080 crore in July-September.
  2. Booking the Supreme Court's AT-1 ruling would mean a quarterly loss of about ₹5,200 crore, the bank said.
  3. The joint auditors gave a qualified conclusion because the impact has not been recognised.

YES Bank reported a 65% rise in quarterly profit on Saturday evening, comfortably ahead of forecasts, but told investors that the Supreme Court’s ruling on its AT-1 bonds would wipe out those earnings and leave a large loss once it is booked.

The private lender’s standalone net profit for July-September was ₹1,080 crore, against ₹654.47 crore a year earlier. On a consolidated basis it earned ₹1,084.08 crore. Profit for the first half of the financial year came to ₹2,150.99 crore. The board took up the results from 4:30 pm and finished at 7:10 pm.

The numbers beat expectations. An average of six brokerage estimates had put profit at about ₹969 crore.

The bonds the results leave out

The figures do not account for the Supreme Court’s judgment of 15 October, which upheld the reversal of the bank’s March 2020 decision to write off ₹8,415 crore of additional tier-1 (AT-1) bonds. The write-down was part of the bank’s 2020 rescue.

In its filing the bank said it was still assessing the judgment and consulting its legal advisers. “The statement does not reflect the resultant financial impact of the aforesaid judgement,” it said.

Because of that, the bank’s joint statutory auditors issued a qualified conclusion on the results, a formal reservation about the accounts.

The bank did set out what the ruling would do on paper. Restated for the bonds, the September quarter would show a net loss of about ₹5,200 crore and the half-year a loss of ₹4,146 crore. Net worth would fall from ₹53,268 crore to ₹46,970 crore, and the annualised return on assets would swing from 0.9% to minus 4.3%. Initial estimates suggest a hit of about 250 basis points to its core equity capital ratio. The bank put its capital adequacy ratio, on that pro forma basis, at 14.5%.

Clean loans, cloudy capital

Away from the court case, the quarter looked healthy. Gross bad loans were 1.2% of the book, or ₹3,875.23 crore, and net bad loans 0.2%. Provisional figures released earlier this month showed loans up 23.8% from a year earlier at ₹3,09,675 crore and deposits up 19.5% at ₹3,54,084 crore.

The capital question is what investors will focus on. YES Bank’s shares lost nearly a fifth of their value at their lowest in the two sessions after the verdict, and Kotak Institutional Equities kept its sell rating on the stock earlier in the week. Monday will be the first trading session since the results.

YES Bank reported on a crowded day for the sector. ICICI Bank’s profit rose 20%, Axis Bank’s 38% and HDFC Bank’s 4.7% on Saturday, while IDBI Bank’s fell 39% on a high base.