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Informist, Monday, Oct. 19, 2026

 

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--YES Bk on AT-1 bonds: Significant development for bank
--CONTEXT: YES Bank mgmt comments at analyst concall post Q2 earnings Sat 
--Yes Bk on AT-1 bonds: Proforma hit of 240 bps on CET-1 ratio 
--YES Bk on AT-1 bonds: Overall tier-1 capital ratio would remain 13.7% 
--YES Bk on AT-1 bonds: Won't pre-empt need to raise capital 
--YES Bank on AT-1 bonds: Implementation timeline unclear 
--YES Bank: Mgmt priorities remain unch post SC judgement on AT-1 bonds 
--YES Bank: Aim to create durable returns for our shareholders 
--YES Bank: More optimistic on growth, scale in franchise vs past months 
--YES Bank: Operating expenses stable vs Q1 excluding FCNR(B) scheme cost 
--YES Bank: Aim to remain well capitalised to sustain business growth 
--YES Bank: Margins fell Q2 due to substantial FCNR(B) inflow 
--YES Bank: Rise in interest rates to have positive bias on margins 
--YES Bank:See competition in loan pricing H2, have tailwinds to offset them 
--YES Bank on AT-1 bonds: Will route through earnings at apt time
--YES Bank on AT-1 bonds: No cash outflow post re-instatement
--YES Bank on AT-1 bonds: Still evaluating consequences of SC judgement
--YES Bank: MDR changes on UPI to increase revenue stream
--YES Bank on AT-1 bonds: Evaluating legal options post SC judgement 
--YES Bank: NIM may rise by high single-digits post 25-bps repo rate hike 
--YES Bank: Raised CDs Q2 as a tactical move due to cheaper rates 
--YES Bk: See no material hit to common equity tier-1 capital post ECL norm
--YES Bank on AT-1 bonds: Made no decision on future coupon payments 
--YES Bank: Slippages holding well; ratio comfortable in Q2 
--YES Bank: Common equity tier-I capital near 11% not ideal for growth 
--YES Bank: Rural infra development fund run-down around INR 80 bln H2
--YES Bank: Deployment of FCNR(B) funds a tailwind for Q4 more than Q3
--YES Bank: Can grow loan book by 11% without consuming capital 
--YES Bank: Annual loan growth of 15% to consume 30-40 bps of capital 
--YES Bank: No gun to our head to solve for capital 
--YES Bank on AT-1 bonds: Credit-neutral event from a ratings perspective
--YES Bank: To deploy FCNR(B) deposits largely in Q3, some in Q4 
--YES Bank: Margins in Q3 may be similar to Q2 with slight negative bias 

 

By Aaryan Khanna and Pratyush Kumar 

 

NEW DELHI – YES Bank Monday said it was examining legal options in response to the Supreme Court judgement last week re-instating its written-down additional tier-I bonds worth INR 84.15 billion. The timeline for implementing the changes to the bank's earnings and balance sheet was still unclear, the private-sector lender's management told analysts in a post-earnings conference call.

 

The management characterised the change as largely affecting the balance sheet and capital as the liability got reinstated, with a hit to the profit-and-loss account at an appropriate time. The common equity tier-I capital ratio would fall 240 basis points to 11.4% as of Sept. 30 on a proforma basis, Managing Director and Chief Executive Officer Vinay Tonse said, while the tier-I capital ratio would remain unchanged. The bank was still assessing how to go about past and future coupon payments to bondholders. 

 

YES Bank would have reported a net loss of INR 52.17 billion during the September quarter, had the bank taken the hit of the re-instatement in the September quarter, it said in a note to its earnings released Saturday. This is a sharp contrast to the company's actual figures for the quarter, as it reported a net profit of INR 10.80 billion. The management clarified Monday that there would be no cash outflow post the re-instatement of the bonds, just an accounting change.

 

"We will continue to assess the implications for our capital structure, regulatory buffers, balance sheet strength and future growth plan," Tonse said. "Having said that, let me call out that directionally, our priorities remain unchanged, building sustainable and profitable growth, strengthening customer relationships, maintaining cost distribution, monitoring the quality of our (assets) and generating...durable returns for our shareholders."

 

The management was in talks with credit ratings agencies and said the decision was a credit-neutral event for the company, even if the earnings hit was substantial. S&P Global Ratings said in a note Friday the court ruling will not affect YES Bank's ratings, only earnings. Executives also said that while common equity tier-I capital was not ideal for growth at near 11%, there was no "gun to our head to solve for capital". The bank also sees no material hit on its capital ratios from the implementation of the expected credit loss accounting framework from Apr. 1.

 

The bank could sustain loan growth of around 11% on year without consuming capital while a 15% loan growth, as envisioned over the next year, could consume around 30-40 bps of the prevailing buffer. The bank also has the benefit of using deferred tax assessments to free up capital without getting to uncomfortably low levels, according to the bank's executives. YES Bank also had stored capital on its balance sheet. The RBI mandates a minimum common equity tier-I capital ratio of 8.0% and the management did not see the need to "pre-empt" any decision on future capital raising, it told analysts. 

 

"We do believe that we will continue to evaluate areas of capital actions to make sure that the bank remains well capitalised in order to fulfil its growth objectives," Chief Financial Officer Niranjan Banodkar said on the call.

 

MARGINS, BUSINESS

The bank's net interest margin in Jul-Sept dipped due to the accretion of foreign currency non-resident (banks) deposits, which were INR 185.75 billion, a little over $1.9 billion. The margin fell to 2.6% in the reporting quarter from 2.5% a year ago and 2.7% from a quarter ago. The management sees the December quarter net interest margin similar to the latest reported number with a slight negative bias, before the benefit of lending linked to the FCNR(B) deposits fully kicks-in in the final quarter of the financial year.

 

The lending itself will pick up before December but the tailwind on earnings and margins will be felt only in the March quarter, the management said. The sequential rise in operating expenses in Jul-Sept was largely linked to INR 510 million on commissions linked to the foreign currency deposits and INR 310 million due to changes in wage codes. The repo rate hike of 25 bps earlier this month will only translate to lending rates in November and so the lender will miss out on the benefit of higher asset spreads for the full quarter. 

 

"...we do believe we will find a high single-digit increase (in margin) on account of the 25 basis points increase (in the repo rate). But it is then a function of liquidity, it is a function of competitive intensity, and that will also have a bearing of how exactly this flows in," the management said.

 

Unlike peers, YES Bank's outstanding certificates of deposits rose to INR 113.82 billion at the end of September from INR 66.04 billion on Jun. 30. Most banks have reduced their reliance on the short-term funding instruments due to FCNR(B) inflows at a cheaper rate. However, YES Bank took the opportunity of lower rates in the short-term debt market as other lenders were missing to shore up its funding requirements. This was a tactical call rather than a fundamental one and took place before the hike in the repo rate, which were widely expected before the September quarter ended, the management said.

 

The lender expects competition on loan pricing in the second half of the financial year as all banks will benefit from the rise in the policy repo rate. One of the key drivers for its own margins will be the drawdown of rural infrastructure development fund that it has built up to account for a shortfall in priority-sector lending last year. Banodkar expects a drawdown of this low-margin lending by INR 80 billion in Oct-Mar, with over half in the December quarter.

 

Managing Director Tonse was optimistic about the scale and growth of the franchise improving as months passed, with credit growth outpacing the industry as of Sept. 30. The proposed merchant discount rate on specified Unified Payments Interface payments will also increase the bank's revenue stream due its leading presence in the digital payments ecosystem. YES Bank leads the country in being the payment service provider for payers and second for payees, holding 58.7% and 36.4% market share, respectively.

 

Meanwhile, asset quality metrics were stable and did not show signs of worry, the management said. Slippages holding up on a growing loan book was a positive sign. The slippage ratio may also only show a few basis points from hereon, with the current level of 1.3% in the September quarter a reasonable figure, Binodkar said. The slippage ratio fell from 1.4% in the trailing quarter and from 2.0% a year ago.

 

Shares of YES Bank were down after the result Saturday and management commentary after opening relatively steady Monday. At 1258 IST, the private-sector lender's share traded 2.5% lower at INR 17.07 on the National Stock Exchange.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Akul Nishant Akhoury

 

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