AT1 bond Case: Yes Bank to appeal Bombay HC order even as Q3 profit falls

Yes Bank will approach the Supreme Court against the Bombay High Court order, which set aside the 2020 decision to write down Rs 8,400 crore of its additional Tier-1 (AT1) bonds, the lender’s chief executive said.

The court decision, though, will not create any immediate liabilities for the bank, Prashant Kumar said.

He was speaking to reporters on Saturday, after the bank announced results for the third quarter when its net profit fell to a fifth of a year earlier due to higher provisions against bad loans.

“The court has not questioned the regulatory guidelines under which the decision was taken but only the process which was followed. Based on the legal opinion we have taken, we are preparing to appeal in the Supreme Court for which we have been granted time of six weeks,” Kumar said.

On Friday, a division bench of the Bombay High Court set aside the decision of a Reserve Bank of India-appointed administrator of Yes Bank to write down the AT-1 bonds bought by investors, on a plea filed by Axis Trustee Services and other investors in the unsecured bonds with no fixed maturity tenures. The court ruled that the administrator exceeded his powers and authority.

The bank does not need to make any contingent provisions after the order since the bank has six weeks to file an appeal in the SC, Kumar said. He said also that there would be no change in the bank’s capital position due to the court order.

For the fiscal third quarter ended December 31, Yes Bank posted a net profit of Rs 52 crore, an 80% fall compared with Rs 266 crore a year earlier.Total provisions more than doubled to Rs 845 crore from Rs 375 crore because the bank had to set aside more money on old non-performing assets as per RBI rules.

The provisions rose despite the bank completing the transfer of NPAs worth Rs 43,715 crore to JC Flowers Asset Reconstruction Co, including Rs 15,198 crore of loans that it had earlier written off.

“The net book value of these loans is Rs 4,982 crore and the final consideration received from JC Flowers was Rs 8,046 crore,” Kumar said. The ARC paid 15% of this in cash and the rest is in security receipts, which are payable on recovery of loans. While the security receipts were worth Rs 6,839 crore, their net carrying value is Rs 3,800 crore,” Kumar said, adding: “The rise in provisions is not due to this transfer but the aging related provisions the bank has to maintain and will continue to maintain on these security receipts.”

After the transfer of the bad loans to JC Flowers ARC, the bank’s total NPAs reduced to 2.02% of outstanding loans from 12.89% in September.

During the past quarter, the bank posted a 10% increase in loans and 56% growth in non-interest income. Operating profit rose 25% from a year earlier to Rs 914 crore, the highest in eight quarters.

Net interest income, the difference between interest earned on loans and that paid for deposits, increased 12% to Rs 1,971 crore in the third quarter. Net interest margin improved to 2.5% up 10 basis points from last year. One basis point is 0.01 percentage point.

Non-interest income included strong fee growth and a one-time, Rs 100 crore, gain on a bond investment which was sold to recover a doubtful debt.

Kumar said the bank could now shift its focus to growth and profitability, since it has been successful in getting rid of its NPA pool.

Net slippages during the quarter after recoveries and upgrades were Rs 1,100 crore, with loans overdue for more than 60 days moving to the 31-90-day bucket, indicating an improvement in asset quality.

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