YES Bank shares are drawing significant attention today after Crisil Ratings announced an upgrade to the long-term rating of the lender's Tier-II bonds (under Basel III) and infrastructure bonds. The rating moved from 'Crisil AA-/Stable' to 'Crisil AA+/Stable'. Additionally, Crisil Ratings reaffirmed its ‘Crisil A1+’ short-term rating on the bank's certificates of deposit (CD).
This positive rating action by Crisil is primarily driven by a marked improvement in YES Bank's overall credit profile. A key factor in the revised analytical approach is the expectation of ongoing support from Sumitomo Mitsui Banking Corporation (SMBC), the bank's single largest shareholder, both in its daily operations and in potential distress scenarios.
Profitability and Liability Franchise Strengthen
Crisil highlighted that YES Bank's credit profile benefits from consistent improvements in its profitability, a trend anticipated to continue over the medium term. The bank's liability franchise has also shown significant strengthening, evidenced by a reduction in its cost of deposits. This positive trajectory is expected to be sustained.
Asset quality metrics at YES Bank remain well-controlled, and capitalisation levels are comfortable. The rating agency noted a sustained improvement in the bank's earnings profile, with the return on assets (RoA) increasing to 0.9 percent in the first quarter and 0.8 percent in FY26, up from 0.6 percent in FY25.
Key Financial Improvements
- Reduced Cost of Deposits: The bank's average cost of deposits declined to 5.7 percent in FY26 from 6.1 percent in FY25, further falling to 5.4 percent in Q1FY27. This narrowing gap with larger peers in deposit costs is a crucial development.
- Stable Net Interest Margin (NIM): YES Bank's NIM remained stable despite a falling interest rate environment, largely due to its effective management in reducing the cost of deposits concurrently.
- Lower Provisions: The improvement in RoA in FY26 was supported by lower provisions, benefiting from recoveries from the securities receipt (SR) book, and higher non-interest income.
While YES Bank's profitability is still lower compared to larger banking peers, Crisil expects continued improvement. This will be driven by the full realisation of benefits from lower deposit costs and a reduction in the drag on interest income from investments in the Rural Infrastructure Development Fund (RIDF) to meet priority sector lending (PSL) shortfalls.
Strategic Support from SMBC
The business profile of YES Bank, encompassing both assets and liabilities, is expected to gain considerably from its association with SMBC. Since becoming YES Bank's largest shareholder, SMBC has demonstrated close involvement and provided substantial support in the bank’s strategic decision-making, including appointing two senior nominee directors to the Board.
"The collaboration framework is expected to benefit the bank through potential business synergies, particularly in the wholesale banking segment, by providing access to SMBC’s global and Indian network. This would also strengthen the bank's liabilities profile by facilitating the acquisition of new current and savings account customers," Crisil stated.
Furthermore, the association is anticipated to positively influence YES Bank’s risk management, governance, and operational capabilities through the transfer of SMBC’s global best practices. Steps in this direction are already underway.