Yes Bank AT1 Bonds: The past few days have been heavy for Yes Bank investors in the stock market. The bank’s shares have seen a massive 17 percent decline since Thursday. This process of sale did not stop even on Monday. On the National Stock Exchange (NSE), the bank’s share fell another 3.5 percent to Rs. It closed at 16.88. The reason behind this big decline is the Supreme Court’s big decision on October 15. The country’s top court has upheld the Bombay High Court’s decision and set aside the March 2020 move, under which additional tier-1 (AT1) bonds were fully written down at the time of the bank’s restructuring.

Bank core capital will be affected

Yes Bank’s loss-making core capital i.e. Common Equity Tier-1 (CET1) is expected to decline after this Supreme Court order. The bank believes its core capital could fall by more than two percent (240 basis points) to 11.4 percent, according to September data. However, the bank also clarified that this assessment of capital reduction is still preliminary. Final accounting and regulatory rules will be decided only after a thorough review. Relievingly, despite this impact, the bank’s total Tier-1 capital ratio is expected to be around 13.7 percent. This level is above the minimum limit required under Indian banking regulations.

This decision has created a new challenge for the bank. The money that the bank uses to run its business may now come under pressure due to this payment. For this reason, the bank is now looking for new options to raise capital. The bank’s managing director and CEO Vinay Tones, speaking to analysts after the results, said the bank will continue to evaluate capital measures to meet its growth targets, so that the bank remains financially strong. He clarified that any decision on capital will be taken keeping in mind regulatory requirements, cost of capital, its availability, shareholders’ interests and long-term goals.

What is the status on payment of 8,415 crores?

After the quarterly results, Yes Bank Chief Financial Officer (CFO) Niranjan Banodkar clarified the situation on the whole matter. He told analysts that how and when the bonds will be refinanced, as well as how interest (coupons) will be paid on them, is being assessed. Japan’s Sumitomo Mitsui Banking Corporation (SMBC) is the largest investor in Yes Bank, holding a 24.9 percent stake in the bank. According to Banodkar, the process of refunding money to bondholders will depend on the terms of the original bond documents (information memorandum) and the details of the Supreme Court’s decision.

The bank has assured investors that while it is exploring legal options, there is no immediate need to pay bondholders. Instead, the bank, from its ‘reserves’ in the ‘liabilities’ section of its balance sheet, has Rs. 8,415 crore will move the outstanding bond amount. The banker has made it clear that currently no payments are being made on these loans and no cash is coming out of the bank’s coffers. This is just an accounting process that the bank has to re-enter in its account.

Looking for legal avenues with outstanding interest dilemma

Yes Bank in his account Rs. 8,415 crore by adding the principal amount and calculated the effect on its capital, but one issue still remains. What to do with the interest (coupon) that has been collected and not paid on these bonds during the last years is yet to be decided. Due to which there is a possibility of additional financial burden on the bank.

Will the bank appeal this decision? To this question, CEO Vinay Tones said that the bank is studying the court decision carefully before taking the next step. “We are understanding every detail of the decision, including the legal options available to us and the appropriate course of action,” he said.

Bank business showed strength

Despite this potential impact on capital, Yes Bank has clarified that there has been no change in its business growth priorities. The bank’s loan disbursement figures have seen a good pace during the September quarter. In the September quarter, the bank’s advances (total loans granted) registered a year-on-year growth of 23.7 percent. On the other hand, if foreign currency term loans linked to FCNR (B) deposits are excluded, the bank’s normal loan growth has been 17.6 per cent.