Court ruling cuts Yes Bank's core equity cushion to about 11.4%

On 15 October 2026 the Supreme Court upheld a Bombay High Court judgment that set aside Yes Bank's write-down of ₹8,415 crore of AT1 bonds, a kind of perpetual bond that counts toward a bank's capital and that was cancelled when the bank was rescued. The bank's first estimate of the cost is a fall of about 240 basis points in its core equity ratio, the measure of loss-absorbing capital set against risky assets. That takes the ratio reported at the end of September down to about 11.4%, a figure management described as indicative.

No cash leaves the bank. The chief financial officer, Niranjan Banodkar, described an accounting entry that moves the bonds out of reserves and back into borrowings, with nothing repaid. Because AT1 bonds still count as capital, though not as core equity, the bank expects its broader capital ratio to stay where it was. What shrinks is shareholders' equity, the capital that absorbs losses first, and the amount is large against it: the reinstated bonds equal nearly a sixth of the equity the bank reported at the end of September, calculated from its filed balance sheet.

The ruling undoes the reassurance the bank gave three months earlier. In April, with the appeal still pending, management declined to discuss its possible effect. In July, with the ratio at 14%, it said that was enough capital for at least the next year of growth, and it presented the board's approval of a capital raise as a standing enabling step. On this call Banodkar changed his language: "clearly, 11%, 11.5% of CET1 is not ideal." He said any capital action, including a raise, would be weighed with that in mind, while arguing that the lower ratio still leaves the bank room to grow.

The interest on the reinstated bonds is the open question. Analysts pressed the bank on whether it would pay coupons on them, both for the years since the write-down and from here on. Banodkar said future coupons were part of an assessment still under way, that the bank's decision on each coupon would be guided by the bonds' original terms, as the judgment had also said, and that there was "no decision to preannounce that today." Whatever the bank decides will affect how much of each quarter's profit is left for shareholders, and that profit is what management is now counting on to rebuild its core capital.

That profit has recovered but has stopped climbing. Consolidated net profit was ₹1,084 crore in the September 2026 quarter, well above a year earlier, yet the two quarters before it produced almost exactly the same amount.

Return on assets, profit as a share of everything the bank holds, was 0.9% last quarter. The bank's aim for this financial year is about 1%. In January management described it as a target, in July as an aspiration, and on this call Banodkar said reaching it depends partly on items outside the core business, such as gains on security receipts. These are claims the bank holds on bad loans it sold to an asset reconstruction company, and they pay out as those loans are recovered. Last quarter they brought in several times what they did the quarter before. Guidance for the full year is ₹800 crore to ₹1,000 crore. Calculated from the gains booked in the first half, the second half needs ₹319 crore to ₹519 crore to land in that range.

The bank's main earnings line, the gap between what it earns on loans and pays for funds, is moving the wrong way for now. Net interest margin slipped to 2.6% last quarter, down from the quarter before. Management attributed the fall to foreign-currency (FCNR) deposits raised during the quarter; much of the money sat in short-term investments before being lent, which Banodkar acknowledged was a poor use from a lending point of view. He expects the margin to hold roughly steady this quarter and to improve in the one after, helped by the run-down of low-yielding deposits the bank must place in the rural infrastructure fund.

Read one way, the ruling is a reclassification that leaves the broader capital ratio intact and costs no cash, and management says the lower ratio still leaves room to grow. Read the other way, nearly a sixth of shareholders' equity has turned into debt, and the profits meant to rebuild it have levelled off, rely in part on recovery gains that arrive in lumps and come with a margin that has yet to turn. Chief executive Vinay Tonse said capital decisions rest with the board and that he would not pre-empt them.