YES Bank AT-1 bond reinstatement may dent capital ratio

The reinstatement of approximately ₹8,415 crore in Additional Tier-1 (AT-1) bonds at YES Bank is expected to have a material impact on the lender's capital adequacy metrics, according to provisional calculations. On a pro forma basis, the bank's Common Equity Tier 1 (CET1) ratio could face a decline of 250 basis points following the bond restoration.

Despite the CET1 pressure, YES Bank's broader Tier 1 capital ratio is projected to remain unchanged at 14 percent, reflecting the offsetting impact of the AT-1 bond reinstatement across different capital components. AT-1 bonds, which are hybrid securities that sit between equity and debt on the capital structure, form a part of Tier 1 capital.

The development carries significance for India's banking sector, as AT-1 bonds play a critical role in capital management for lenders. The potential 250 basis point reduction in CET1 ratio could influence regulatory oversight and capital planning decisions at YES Bank, though the maintained Tier 1 position suggests the bank's overall capital adequacy framework remains intact.

AT-1 securities represent a complex component of bank capital structures, with specific regulatory treatment that can create variability in different capital metrics during corporate actions such as reinstatement or restructuring events.