YES Bank auditor red-flags multiple breaches of RBI's norms in FY20

Bank sets aside Rs 334 cr for expected penalty for SLR breach.

The auditor of YES Bank has pointed out multiple breaches of the Reserve Bank of India’s (RBI’s) norms and loan covenants by the private bank in the financial year ended March 2020, warning that these may impact the bank’s ability to continue as a going concern.

The auditor, BSR & Co, also said that as the fate of the bank’s additional tier-1 (AT-1) bonds remained uncertain — as the matter is pending in court — any adverse judgment would affect it adversely.

The bank has breached the regulatory requirements of the RBI regarding maintaining the minimum common equity tier-1 (CET-1) and tier-1 capital ratios, which indicates the position of capital adequacy of a bank. “The breach is primarily on account of the increase in the provision for advances during the year ended March 31, 2020, as the bank has decided, on a prudent basis, to enhance its provision coverage ratio on its non-performing asset (NPA) loans over and above minimum RBI loan level provisioning,” the auditor’s report said.

It said the bank had incurred a loss of Rs 16,418 crores for the year ended March 31, 2020. During the last six months of fiscal 2020, there has also been a significant decline in the bank's deposit base, an increase in its non-performing assets or bad loan ratios, resulting in breach of loan covenants on its foreign currency debt and credit rating downgrades, it said. This resulted in partial prepayment of foreign currency debt linked to external credit rating.

“The bank has breached minimum statutory liquidity ratio (SLR) and liquidity coverage ratio requirements of the RBI during the year and has provided an amount of Rs 334 crores for the expected penalty on the SLR breach,” said the report.