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Summary: YES Bank's books are cleaner and profits are climbing. But a decision from its 2020 rescue, one that once flattered its earnings, has just been revived by the Supreme Court. How much it hurts depends on questions still unanswered, and shareholders may feel it more than the capital ratios suggest.
YES Bank has come a long way since its near-collapse in 2020. Bad loans have fallen, profitability is improving, and Japan's Sumitomo Mitsui Banking Corporation (SMBC) is now its largest shareholder. Yet a decision taken during that rescue threatens to complicate the recovery.
On 15 October 2026, the Supreme Court upheld the Bombay High Court's decision quashing the write-off of Rs 8,415 crore in Additional Tier 1 (AT1) bonds. The disputed amount equals 2.4 times YES Bank's FY26 profit. No specific provision had been recognised against the litigation.
How much could this change the bank's finances and shareholders' returns?
How the problem began
When YES Bank ran into serious financial trouble in March 2020, the Reserve Bank of India intervened and a State Bank of India-led group helped recapitalise it.
The bank also extinguished Rs 8,415 crore of AT1 bonds. These perpetual securities carry higher coupons than ordinary debt but can absorb losses under specified conditions when a bank is in distress.
That decision materially improved reported earnings. YES Bank recorded Rs 6,296.9 crore in extraordinary income after tax in Q4 FY20, turning an underlying quarterly loss of Rs 3,668.3 crore into a reported profit of Rs 2,628.6 crore.
But bondholders challenged the write-off. Although the draft reconstruction scheme provided for it, the final scheme effective 13 March 2020 did not. The administrator extinguished the bonds on 14 March. In January 2023, the Bombay High Court quashed that decision. The Supreme Court has now upheld the ruling.
Importantly, the decision concerns the legality of this particular write-off, not whether AT1 instruments can ever absorb losses.
A recovery with limitations
Since the rescue, YES Bank has rebuilt deposits, cleaned up its loan book and returned to profitability.
YES Bank's financial recovery
| Particulars | FY22 | FY23 | FY24 | FY25 | FY26 |
|---|---|---|---|---|---|
| Deposits (Rs cr) | 1,97,192 | 2,17,502 | 2,66,372 | 2,84,525 | 3,18,969 |
| Net advances (Rs cr) | 1,81,052 | 2,03,269 | 2,27,799 | 2,46,188 | 2,73,445 |
| Net profit (Rs cr) | 1,066 | 717 | 1,251 | 2,406 | 3,476 |
| Return on assets (%) | 0.4 | 0.2 | 0.3 | 0.6 | 0.8 |
| Return on equity (%) | 3.2 | 2 | 3 | 5.2 | 7 |
| Gross NPA (%) | 13.9 | 2.2 | 1.7 | 1.6 | 1.3 |
| Net NPA (%) | 4.5 | 0.8 | 0.6 | 0.3 | 0.2 |
| CASA ratio (%) | 31.1 | 30.8 | 30.9 | 34.3 | 35.1 |
| Cost-to-income (%) | 70.1 | 72.6 | 74.4 | 71.3 | 66.7 |
| CET1 ratio (%) | 11.6 | 13.3 | 12.2 | 13.5 | 13.8 |
| Source: YES Bank financial statements, investor presentations and CRISIL. Standalone figures. FY23 RoE uses weighted-average equity; FY23 cost-to-income uses the later comparative disclosure. FY24 CET1 excludes subsequent warrant conversions. | |||||
FY26 profit rose 44.5 per cent to Rs 3,476 crore, while return on assets improved to 0.8 per cent. Q1 FY27 profit reached Rs 1,071 crore. However, earnings remain relatively modest for a private bank, and Rs 1,559 crore of FY26 gains came from security receipts associated with stressed-asset recoveries. Such gains cannot be assumed to recur every year.
What could the ruling cost?
YES Bank did not recognise a specific provision for the AT1 litigation. Its FY26 disclosures maintained that the original write-off complied with applicable requirements and that management did not expect a material financial impact. That assessment must now be reconsidered.
But overturning the write-off does not necessarily trigger an immediate Rs 8,415 crore cash repayment. AT1 bonds have no fixed maturity. If reinstated as eligible AT1 instruments, they could continue as regulatory capital.
CRISIL had anticipated this possibility in August 2026. It estimated that full reinstatement could reduce the bank's Common Equity Tier 1 (CET1) ratio by 2.3–2.5 percentage points, offset by a corresponding rise in AT1 capital. Total capital adequacy could remain unchanged.
Impact of full AT1 reinstatement
| Capital ratio | Jun-26 | After reinstatement |
|---|---|---|
| CET1 (%) | 14 | 11.5–11.7 |
| AT1 (%) | 0 | 2.3–2.5 |
| Tier 1 (%) | 14 | 14 |
| Total capital adequacy (%) | 15.1 | 15.1 |
Even with unchanged total regulatory capital, a smaller common-equity buffer could restrict lending growth or increase the need for new equity.
Coupon payments present another risk. The two bond series carry annual coupons of 9.5 and 9.0 per cent on Rs 3,000 crore and Rs 5,415 crore, respectively. If fully resumed, annual payments would total Rs 772.4 crore, equivalent to 22.2 per cent of FY26 profit. These coupons are discretionary, not guaranteed interest obligations. Whether any retrospective payments are due remains uncertain.
What remains for shareholders?
YES Bank's June 2026 net worth was Rs 52,338 crore. The disputed principal equals 16.1 per cent of it. If the entire amount reduced ordinary shareholders' equity, adjusted book equity would fall to Rs 43,923 crore, increasing the price-to-book multiple by 19.2 per cent at an unchanged share price.
This is a sensitivity, not a confirmed accounting adjustment. Nevertheless, it explains why a ruling that leaves total capital adequacy unchanged could still reduce the value attributable to shareholders.
SMBC's ownership strengthens the bank's strategic position, but its initial investment largely involved buying existing shares, not injecting fresh capital into YES Bank.
The turnaround is genuine, but returns remain modest and the legal consequences unresolved. Before interpreting a fall in the share price as an opportunity, investors need clarity on whether the bonds will be reinstated or repaid, what happens to their coupons and how any liability will be recognised.
Also read: 10 PSU banks look cheap. Market is asking a fair question
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