YES Bank faces ₹8,415 crore AT1 bond risk

YES Bank Limited (NSE: YESBANK) faces an ₹8,415 crore exposure after the Supreme Court upheld the quashing of its 2020 Additional Tier 1 bond write-off. Recognising the financial impact could turn its reported Q2 FY27 profit of ₹1,080 crore into a loss of ₹5,217 crore. This legal development is more important than the bank's headline quarterly profit growth. YES Bank reported a 65% year-on-year increase in profit, supported by 22.7% growth in net interest income and lower provisions. Its gross NPA ratio also improved to 1.2%. However, these operating improvements need to be considered alongside the unresolved AT1 bond issue. The Supreme Court's decision upheld the quashing of the 2020 write-off of ₹8,415 crore in AT1 bonds. The ruling found that the write-off was not supported by the final reconstruction scheme approved for the bank. YES Bank has not incorporated the full financial impact into its reported quarterly results and is evaluating its legal options. The implications extend beyond one quarter's earnings. If the bonds are reinstated, the bank could face a material reduction in net worth and an increase in liabilities. The final accounting treatment and any further legal developments will determine the actual impact. My view is that investors should separate the bank's improving operating performance from the uncertainty created by this ruling. A 65% increase in quarterly profit is encouraging, but it does not resolve a potential liability that is several times larger than quarterly earnings. Until the financial consequences become clearer, the reported profit growth is an incomplete basis for evaluating the bank's investment case.