'Sell' YES Bank shares, target price Rs 18, says Kotak; here's why
YES Bank: Kotak warned of a potential NIM compression, given the incomplete rate pass-through. The anticipated expansion of RoE, driven by NIM improvements, is expected to proceed at a slower pace.
- Jul 21, 2025,
- Updated Jul 21, 2025 11:53 AM IST
Kotak Institutional Equities has reaffirmed its 'Sell' rating on YES Bank, despite the private lender reporting a substantial 59 per cent year-on-year (YoY) earnings growth for the first quarter of FY26. This decision is based on persistent high valuations and a gradual improvement in the return on equity (RoE) expected by Kotak.
YES Bank witnessed a 50 per cent YoY increase in operating profit, although this was tempered by a 35 per cent YoY rise in provisions. The bank's net interest margin (NIM) remained flat, a positive surprise attributed to lower priority sector lending charges and cuts to savings rates. However, slippages at 2.4 per cent were primarily driven by retail loans, indicating a challenging retail portfolio.
Kotak's report highlighted a 20 per cent YoY revenue growth, with net interest income (NII) rising by 6 per cent YoY and non-interest income climbing by approximately 45 per cent YoY. Despite these gains, the bank is yet to return to a normalised business environment due to ongoing volatility in provisions.
The NIM stood unchanged quarter-on-quarter at 2.5 per cent, benefiting from reduced savings interest rates and cuts in Rural Infrastructure Development Fund bonds. Gross and net non-performing loan (NPL) ratios remained steady, leading to a provision coverage ratio (PCR) of 80 per cent. Slippages, however, remained high, particularly in the retail segment, while credit costs fell quarter-on-quarter to around 100 basis points.
YES Bank's loan growth was sluggish at 5 per cent YoY, with deposits increasing by about 4 per cent YoY. The bank, however, performed better in current account and savings account (CASA) mobilisation, with savings deposits growing by approximately 20 per cent YoY.
Kotak Institutional Equities noted that the bank's ability to maintain its NIM at current levels was bolstered by strategic decisions, including reducing peak savings interest rates. Such measures are seen across several mid-tier private banks and are not anticipated to have long-term adverse impacts.
However, Kotak warned of a potential NIM compression, given the incomplete rate pass-through. Consequently, the anticipated expansion of RoE, driven by NIM improvements, is expected to proceed at a slower pace. Meanwhile, reduction in credit costs is also progressing more slowly than desired.
The report observes improvements in slippages, particularly in personal and unsecured loans, although they remain higher than ideal. Recovery from security receipts continues to benefit the bank, a trend Kotak expects to persist in the medium term.
"We maintain SELL rating on YES Bank with an FV of Rs18 (Rs17 earlier), valuing the bank at ~1X book and ~10X June FY2027 EPS for RoEs that are still
According to Kotak, the bank's prospects for delivering returns and growth closer to industry averages remain a few years away. The investment outlook remains cautious, notwithstanding a slightly raised fair value estimate from Rs17 to Rs18 per share.
Kotak Institutional Equities has reaffirmed its 'Sell' rating on YES Bank, despite the private lender reporting a substantial 59 per cent year-on-year (YoY) earnings growth for the first quarter of FY26. This decision is based on persistent high valuations and a gradual improvement in the return on equity (RoE) expected by Kotak.
YES Bank witnessed a 50 per cent YoY increase in operating profit, although this was tempered by a 35 per cent YoY rise in provisions. The bank's net interest margin (NIM) remained flat, a positive surprise attributed to lower priority sector lending charges and cuts to savings rates. However, slippages at 2.4 per cent were primarily driven by retail loans, indicating a challenging retail portfolio.
Kotak's report highlighted a 20 per cent YoY revenue growth, with net interest income (NII) rising by 6 per cent YoY and non-interest income climbing by approximately 45 per cent YoY. Despite these gains, the bank is yet to return to a normalised business environment due to ongoing volatility in provisions.
The NIM stood unchanged quarter-on-quarter at 2.5 per cent, benefiting from reduced savings interest rates and cuts in Rural Infrastructure Development Fund bonds. Gross and net non-performing loan (NPL) ratios remained steady, leading to a provision coverage ratio (PCR) of 80 per cent. Slippages, however, remained high, particularly in the retail segment, while credit costs fell quarter-on-quarter to around 100 basis points.
YES Bank's loan growth was sluggish at 5 per cent YoY, with deposits increasing by about 4 per cent YoY. The bank, however, performed better in current account and savings account (CASA) mobilisation, with savings deposits growing by approximately 20 per cent YoY.
Kotak Institutional Equities noted that the bank's ability to maintain its NIM at current levels was bolstered by strategic decisions, including reducing peak savings interest rates. Such measures are seen across several mid-tier private banks and are not anticipated to have long-term adverse impacts.
However, Kotak warned of a potential NIM compression, given the incomplete rate pass-through. Consequently, the anticipated expansion of RoE, driven by NIM improvements, is expected to proceed at a slower pace. Meanwhile, reduction in credit costs is also progressing more slowly than desired.
The report observes improvements in slippages, particularly in personal and unsecured loans, although they remain higher than ideal. Recovery from security receipts continues to benefit the bank, a trend Kotak expects to persist in the medium term.
"We maintain SELL rating on YES Bank with an FV of Rs18 (Rs17 earlier), valuing the bank at ~1X book and ~10X June FY2027 EPS for RoEs that are still
According to Kotak, the bank's prospects for delivering returns and growth closer to industry averages remain a few years away. The investment outlook remains cautious, notwithstanding a slightly raised fair value estimate from Rs17 to Rs18 per share.