'Capital buffer will narrow': Japan Credit Rating Agency shares views on YES Bank

Japan Credit Rating Agency (JCR) on Friday assigned inaugural credit ratings of A- to YES Bank Ltd's foreign currency long-term issuer rating and BBB+ to its foreign and domestic currency issuer rating.

YES Bank's consolidated common equity Tier 1 (CET1) ratio stood at 13.9 per cent at the end of FY26 and 13.7 per cent at the end of the second quarter of FY27, the rating agency said. Following the Supreme Court ruling on AT1 bonds in October 2026, YES Bank has estimated that its CET1 ratio would decline to 11.4 per cent, JCR said.

"Although the capital buffer will narrow to some extent, the ratio is expected to remain comfortably above the regulatory minimum requirement of 8 per cent even after the decline," JCR said.

Besides, given the ongoing improvement in YES Bank's earnings capacity, JCR believes the bank will be able to gradually restore its capital level through retained earnings and any subsequent capital raise. JCR said it would closely monitor the final accounting treatment of the AT1 bonds as well as progress on the bank's capital restoration.

On Friday, the YES Bank stock was trading flat at Rs 17.64 apiece.

The rating agency said YES Bank's performance has been on a recovery trend since bottoming out in FY2020. In the course of its reconstruction following the crisis, the private lender reviewed its previous growth-oriented business operations and shifted to a more prudent risk management policy, including the application of stricter credit standards, JCR said.

"At the same time, it has been building a more diversified loan portfolio by reducing the proportion of loans to large corporations and increasing the proportions of retail and small and medium-sized enterprise (SME) loans. Against this background, the Bank has steadily increased its loan balance while keeping credit costs under control. Net profit attributable to shareholders of the bank reached Rs 35.1 billion in FY2026, the highest level since the crisis," JCR said.

It said earnings continued to increase in the first and second quarters of FY2027, indicating that the bank's recent performance remained solid.

That said, JCR noted that YES Bank's profitability remained below that of peers, with further scope for improvement. The bank's return on assets (ROA), based on pre-provision operating profit, was 1.2 per cent in FY26.

"Nevertheless, ROA has been gradually improving, supported by factors including lower funding costs resulting from the strengthening and expansion of the Bank's deposit base, as evidenced by the rise in the ratio of current account and savings account