YES Bank will have to take effective steps to augment its capital base in 2020-21, as it has breached the Reserve Bank of India (RBI) mandated Common Equity Tier-I (CET-I) ratio and Tier-1 capital ratio, according to the auditor’s report.
The private sector bank’s CET-I ratio and Tier-I capital ratio, which stood at 6.3 per cent and 6.5 per cent respectively as compared to the minimum requirements of 7.375 per cent and 8.875 per cent respectively, the report said. These ratios indicate the position of capital adequacy of a bank.
“In view of the RBI norms relating to the breach of the aforesaid ratio, there is uncertainty around RBI’s potential action for such a breach... We are unable to comment on the consequential impact of the above regulatory breach on these standalone financial results,” the auditor, BSR & Co LLP said.
The breach of the CET-I requirement was also impacted by the decision of the bank to enhance its provision coverage ratio (PCR), on a prudent basis, on its NPAs (non-performing assets) over and above the RBI’s minimum loan provisioning norms, it added.
The PCR has improved to 73.77 per cent in March-end 2020 quarter as against 72.7 per cent in December-end 2019 quarter.
However, the RBl’s current framework on ‘Prompt Corrective Action’ (PCA) considers regulatory breaches in CET a potential trigger.
“The bank remains in constant communication with the RBI on the various parameters and ratios, and the RBI has not imposed any fine on the bank for the regulatory breaches,” according to the notes to accounts.
As per the notes, the bank’s management and board of directors have made an assessment of its ability to continue as a going concern based on the projected financial statements for the next three years.
They are satisfied that the proposed capital infusion and the bank’s strong customer base and branch network will enable it to continue its business for the foreseeable future, so it can realise its assets and discharge its liabilities in its normal course of business.
The report said the bank has breached minimum statutory liquidity ratio (SLR) and liquidity coverage ratio (LCR) requirements of the RBI during FY20, and has provided an amount of ₹334 crore for the expected penalty on the SLR breach.
The bank had received capital from investors amounting to ₹10,000 crore (from State Bank of India, ₹6,050 crore; HDFC and ICICI Bank: ₹1,000 crore each; Axis Bank, ₹600 crore; Kotak Mahindra Bank, ₹500 crore; Federal Bank and Bandhan Bank, ₹300 crore each; and IDFC First Bank, ₹250 crore) on March 14, 2020.