Yes Bank Explores Legal Avenues Post Supreme Court Ruling on AT-1 Bonds
Following a Supreme Court decision, Yes Bank is assessing legal options regarding its AT-1 bonds, impacting its financial reporting.
Yes Bank is considering legal remedies after the Supreme Court's ruling on AT-1 bonds.
The bank's financial results for Q2 do not reflect the potential impact of this ruling.
Pro-forma figures indicate a significant loss if the ruling's effects were accounted for.
On October 17, Yes Bank announced that it is evaluating various legal options in light of a recent Supreme Court ruling regarding Additional Tier-1 (AT-1) bonds. This decision, which upheld a prior judgment from the Bombay High Court, stated that the bank's administrators did not have the authority to write off these bonds during its reconstruction in March 2020. The ruling mandates that such actions should have been executed by the Reserve Bank of India (RBI).
The Supreme Court's ruling, delivered on October 15, has significant implications for Yes Bank's financial health. In its latest quarterly report, the bank did not account for the potential financial repercussions of this ruling, which could drastically alter its reported profits. The auditors noted that the bank's net profit for the second quarter could have been a loss of Rs 5,213 crore instead of a profit of Rs 1,084 crore had the ruling's impact been recognized.
In its stock exchange filing, Yes Bank indicated that it is consulting with legal advisers to explore all available legal remedies, including the possibility of filing a review petition within the next 30 days. However, legal experts have suggested that the grounds for such a petition may be limited, potentially constraining the bank's options moving forward.
The financial implications of the Supreme Court's ruling extend beyond immediate losses. If the ruling's effects were incorporated, Yes Bank's annualized return on average assets would have dropped to a negative 4.3% for the September quarter, compared to the reported positive 0.9%. Additionally, the bank's common equity tier-1 (CET-1) ratio would have decreased to 11.4% from 13.7%, indicating a significant deterioration in its capital position.
Looking ahead, Yes Bank has stated that any consequential financial impacts will be recognized in accordance with applicable accounting standards, contingent on further legal developments and assessments. The bank's management is likely to face pressure to clarify its financial position as it navigates the repercussions of the Supreme Court's decision and considers its next steps in the legal landscape.
