YES Bank core earnings strengthen as margins and asset quality improve

Investment View and Valuation

Ajcon Global Services Limited’s August 4, 2026 report views YES Bank as progressing towards a sustainable, core earnings-led franchise. The broker maintains its BUY recommendation and its earlier target price of Rs 28.5.

Ajcon believes the balance-sheet clean-up is largely complete. Improving liability quality, calibrated credit growth and stable asset quality are expected to support a steady improvement in profitability. The broker also cites the bank’s healthy capital position, improving operating efficiency and recent credit-rating upgrades as factors that can support growth while preserving prudent risk management.

Q1 FY27 Financial Performance

YES Bank reported profit after tax of Rs 1,071 crore in Q1 FY27, an increase of 33.7 per cent year on year and broadly flat quarter on quarter. Operating profit rose 25.5 per cent year on year to Rs 1,704 crore.

Ajcon considers the earnings quality to have improved because core operating earnings grew despite lower treasury income and lower gains from security receipts. Net interest income increased 17.5 per cent year on year to Rs 2,786 crore, while net interest margin improved by 20 basis points year on year to 2.7 per cent, supported by a 50-basis-point fall in the cost of deposits.

Core fee income grew 18.7 per cent year on year, led by cards, third-party distribution, foreign exchange and transaction banking. The cost-to-income ratio declined to 62.8 per cent from 67.1 per cent in Q1 FY26, indicating positive operating leverage.

Balance-Sheet Growth and Asset Quality

Balance-sheet growth remained healthy, with advances increasing 18.3 per cent year on year to Rs 2.85 lakh crore. Corporate and Institutional Banking advances grew 41.4 per cent, Commercial Banking advances increased 16.9 per cent and Retail Banking advances rose 6.9 per cent.

Deposits rose 14.3 per cent year on year to Rs 3.15 lakh crore, although they declined 1.1 per cent quarter on quarter. Retail and branch-led deposits accounted for 59.2 per cent of total deposits. Retail asset disbursements increased 27.5 per cent year on year.

Margin Expansion and Growth Outlook

Management reiterated its aspiration to raise net interest margin above 3 per cent over the next two years. The targeted improvement is expected to come from the runoff of low-yielding RIDF and priority-sector deposits, deposit repricing and a better CASA mix.

For FY27, management guided for loan-book growth of 15 to 17 per cent, return on assets of around 1 per cent and Rs 800 to Rs 1,000 crore of security-receipt portfolio gains. Strong retail disbursement momentum is expected to translate into mid-teen retail loan-book growth, while the bank retains a prudent retail mix of about 75 per cent secured and 25 per cent unsecured loans.

• The bank remains adequately capitalised for the next three to four quarters and may raise capital opportunistically.
• YES Bank sees opportunities in India-Japan trade, infrastructure financing and cross-border corporate business through its SMBC partnership.

Key Risks

• The pending Supreme Court case on the AT1 bond write-off could create financial and reputational liabilities if the outcome is adverse.
• Unsecured retail products, including personal loans and credit cards, remain vulnerable to asset-quality pressures.
• The large equity base constrains return ratios.
• Elevated RIDF deposits and structurally lower net interest margins than leading private banks remain drags on margins and balance-sheet efficiency.
• Geopolitical tensions and inflation pressures could weaken MSME borrower health and repayment capacity.