SC ruling on AT1 bonds to hit Yes Bank's capital ratio: Moody's

Moody's Ratings projects Yes Bank's CET1 capital ratio will fall to 11.4% from 13.7% after the Supreme Court's ruling to reinstate AT1 bonds. The agency affirmed the bank's Ba1 rating and stable outlook despite the expected hit to capital.

The Supreme Court’s ruling on Yes Bank’s additional tier 1 (AT1) bonds is expected to impact the lender’s capital ratio and profitability, with its Common Equity Tier 1 (CET1) capital ratio projected to decline to 11.4 per cent from 13.7 per cent, according to Moody’s Ratings.

The rating agency, in a release enclosed in the bank’s exchange filing on Tuesday, said it had affirmed Yes Bank’s long-term foreign and local currency deposit ratings at Ba1 and maintained a stable outlook despite the expected decline in its core capital.

The reinstatement of the AT1 securities is expected to weaken the bank’s capital position and have a one-time negative impact on profitability. However, the Tier 1 capital ratio is expected to remain unchanged as the reinstated bonds will continue to count towards regulatory capital adequacy.

Moody's Outlook and Mitigating Factors

“Management estimates the bank's CET1 ratio will decline to 11.4% from 13.7% on a pro forma basis as of September 2026,” Moody’s said in the release.

The rating agency added that the impact of the lower CET1 ratio would be mitigated by improvements in the bank’s funding profile, asset quality and profitability. “We expect Yes Bank to replenish its capital buffers by raising new equity capital to a level that is sufficient to support loan growth, while strengthening its loss absorbing buffers,” Moody’s said.

Details of the Supreme Court Ruling

The Supreme Court on October 15 upheld the Bombay High Court’s decision to set aside the write-off of Yes Bank’s AT1 securities and dismissed appeals filed by the bank, the Reserve Bank of India and the Government of India. The court ordered the reinstatement of the securities on the ground that the proper legal process for writing them down had not been followed.

Moody’s noted that the ruling did not question the ability of AT1 securities to absorb losses when a bank reaches the point of non-viability. The ruling has implications for Yes Bank’s capital position, as the reinstated bonds will affect its common equity capital and profitability, even as they continue to qualify towards its overall Tier 1 regulatory capital.

Potential Risks and Rating Triggers

Moody’s said Yes Bank’s ratings could face downward pressure if its tangible common equity to risk-weighted assets ratio falls below 11 per cent without clear visibility into a capital-raising plan or if its funding or asset quality materially weakens.

The bank’s asset quality has improved, with its gross non-performing loan ratio declining to 1.2 per cent as of September 2026. Its liquidity coverage ratio stood at 131 per cent for the quarter ended September 2026, above the peer average, according to the release.

Yes Bank disclosed the rating action in a filing to the BSE and the National Stock Exchange under the SEBI Listing Obligations and Disclosure Requirements Regulations, 2015. (ANI)

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