Yes Bank will not be under immediate pressure to raise capital even as its common equity tier-1 (CET1) ratio could flip to 11.4% from the reported 13.7% if the AT1 bonds are restored on the balance sheet, a senior official said.

The bank has “certain features of stored capital on its balance sheet” which it could put into use to fund growth. It will not take its feet off the growth pedal as it has gathered a strong momentum and would not like to upset it. 

“I think there is no gun to our head to solve for capital. In any case, we have to make sure we are going through the moment of evaluation assessment. But we believe that this is something where we will continue to work towards growing in line with our objectives,” said Yes Bank chief financial officer Niranjan Banodkar.

The private lender is evaluating the situations it could fall into following the Supreme Court’s ruling, which struck down the lender’s Rs 8,415-crore write-off of additional tier-1 (AT1) bonds.

The stored capital on Yes Bank’s balance sheet could come into play, which includes security receipts of Rs 2,000 crore. “We have certain features of stored capital on our balance sheet. There is a security receipts portfolio which is about Rs 2,000 crore, with zero carrying value. There are such stored levers available to unlock capital that allows us to continue to pursue our growth and scale objectives,” Banodkar said.

The CET1 ratio is not something Yes Bank managing director and CEO Vinay M Tonse is comfortable with and he would prefer the level to be at 13.5-14%. He, however, believes that there are capital buffers available and the bank’s growth objectives and ambitions are not going to get compromised. 

While making sure that the capital levels are more comfortable, Tonse said the bank will take no action which will be detrimental to its shareholders. Keeping the court order on AT1 bonds in mind, the lender will continue with its assessments on the quantum, value and rate of the coupons as it plans to pursue legal remedies, including review of the SC judgment.

“Capital decisions will be based on a careful assessment of regulatory requirements, the cost and availability of capital, shareholder interests and the bank’s medium-term growth objectives. We will not preempt those decisions today,” Tonse said.

Tonse, who in his earlier stint was managing director of State Bank of India, said the SC ruling is a “significant development” for the bank and “it is important to address it upfront”. The bank is examining the judgment carefully, including the options available to it. 

“We will continue to assess the implications (SC order) for our capital structure, regulatory buffers, balance sheet strength and future growth plans…Directionally, our priorities remain unchanged - building sustainable and profitable growth, strengthening customer relationships, maintaining cost discipline, monitoring the quality of our assets and generating durable returns for our shareholders,” Tonse told analysts at the post-earnings call held on Monday morning.  

Will there be a cash outflow situation or is it just an accounting outcome?

“The principal restatement of the AT1 bonds is in substance a balance sheet change from the reserves to the borrowings, which is a tier-1 classification. There’s no repayment, no cash outflow on the borrowing. It’s just an accounting that we will have to restate,” said Banodkar.

Besides accounting adjustment, the manner and timing of the restatement of the bond as well as the payment of the coupon are under assessment. 

While keeping an eye on the capital side, the bank will continue to focus on improving its core operations. The bank’s cost-to-income has come down to 64% from around 74% two years back, the return on assets (RoA) has continued to improve and the non-performing loans has been consistently reducing over the last three quarters.

The capital side is also getting support from Japan’s Sumitomo Mitsui Banking Corporation (SMBC), which remains a strong partner with a 24.9% stake in Yes Bank. “Another significant positive for us would be the cross-references that come out of the SMBC relationship,” Tonse said.

The chief of Yes Bank stressed that capital planning would remain an important area of focus as “we reassess the implications of the judgment and also support the bank’s future growth requirements”. The drive will also be to maximise the SMBC value proposition. 

“I think, we have enough capacity to continue to grow at whatever we have planned,” Tonse summed up.