Yes Bank reported a 65% rise in quarterly profit to Rs 1,080 crore, supported by strong loan and deposit growth. However, the result excludes a potential Rs 8,415 crore liability from a Supreme Court ruling on AT1 bonds. If this impact is accounted for, the bank would face a net loss of Rs 5,217 crore, a critical risk factor for investors to monitor.
Yes Bank announced its financial results for the second quarter of the fiscal year 2027, showing a significant recovery in operational performance. The lender reported a standalone net profit of Rs 1,080 crore, a 65% increase compared to the same period last year. This growth was largely driven by robust interest income, with net interest income rising by 22.7% to Rs 2,822 crore. The bank also saw healthy momentum in its core business, as interest earned from loans grew by 17.2% to Rs 6,600 crore.
Strong Operational Growth and Asset Quality
The bank’s balance sheet expansion highlights its recent business momentum. Advances, or the total loans provided by the bank, grew by 23.7% to reach Rs 3.10 lakh crore. Deposit growth also remained strong at 19.5%, with the total deposit base touching Rs 3.54 lakh crore. Asset quality improved during the quarter, reflecting better loan recovery. The gross non-performing asset ratio, which measures the percentage of bad loans, improved to 1.2% from 1.6% a year ago. Similarly, net non-performing assets, which reflect the bank's actual risk from bad loans after accounting for provisions, declined to 0.2%.
The AT1 Bond Challenge
Despite the positive operational results, a significant regulatory development hangs over the bank's financial outlook. On October 15, the Supreme Court upheld a Bombay High Court ruling that set aside the write-down of Additional Tier-1 (AT1) bonds worth Rs 8,415 crore, which had occurred in March 2020.
The bank has not included the impact of this judgment in its latest quarterly earnings. In fact, the joint statutory auditors of the bank have issued a qualified review conclusion regarding this omission, noting that the financials do not reflect this potential liability. According to the bank's own pro forma disclosures, if the financial impact of this court decision were recognized, the institution would have posted a net loss of Rs 5,217 crore for the quarter instead of the reported profit. While the bank currently maintains a capital adequacy ratio of 14.5%, representing a buffer of capital to cover risks, investors will need to monitor how the management navigates the legal and financial implications of this liability.
Future Monitorables
The most important point for shareholders now is how the bank approaches this legal and financial hurdle. The company is currently evaluating its legal options and planning an implementation strategy for the bond liability. Future updates on how this impacts the bank’s capital position, regulatory compliance, and overall financial health will be essential for assessing its long-term stability. Investors may also track management commentary on how they plan to handle this potential financial burden without hindering the bank's ongoing growth in loans and deposits.