YES Bank share price: Emkay Global keeps 'Sell' rating, sets target at Rs 17

Emkay Global Financial Services Ltd, which recently hosted Sunil Parnami, Head of Strategy at YES Bank, retained a 'Sell' rating on YES Bank's stock, setting a target price of Rs 17. The target implies a valuation of 1.2 times the bank's FY27 estimated adjusted book value (ABV). The brokerage firm cites YES Bank's sub-par growth and return ratios as key reasons for this rating.

YES Bank's retail portfolio continues to face stress, as indicated by a slippage ratio of 2.5% in Q1FY26. However, there are some signs of improvement in its unsecured portfolio, specifically in personal loans and credit cards. The bank is striving to enhance its high-return assets, despite challenges in increasing its share of higher-yielding loans, Emkay Global said in its key takeaways from the meeting.

The YES Bank anticipates the peak impact of rate cuts on loan yields in Q2 FY26, with gradual recovery expected by Q4. This recovery is anticipated to be supported by repricing of corporate deposits and reducing the Reserve Bank of India's (RBI) imposed cash reserve ratio (CRR). The bank has managed to lower its Rural Infrastructure Development Fund (RIDF) share and aims to further decrease it by FY27, Emkay Global said.

A significant development is the recent agreement by Sumitomo Mitsui Banking Corporation (SMBC) to acquire a 20% stake in YES Bank from SBI and other banks, at a price of Rs 21.5 per share. This transaction, which values the bank at 1.3 times its FY27E ABV, is currently pending RBI's approval, expected by the end of September.

YES Bank is currently pausing its search for a new CEO until the aforementioned transaction receives regulatory clearance. The bank expects substantial recoveries in FY26, projecting Rs 12 billion from security receipts and Rs 20 billion from written-off assets, which should bolster its return on assets (RoA).

The bank's capital position remains robust, with a Common Equity Tier 1 (CET1) ratio of 14%. This healthy capital level is anticipated to support future credit growth, offering a degree of stability despite the ongoing challenges.

Despite these developments, Emkay Global's target remains conservative, reflecting caution amidst YES Bank's rich valuations and moderate growth prospects. The bank's strategy to focus on higher RoA assets and capitalise on market opportunities continues to face hurdles.

Emkay Global's valuation highlights the broader market skepticism about YES Bank's capacity to significantly enhance its financial metrics in the near term. As the bank navigates these challenges, the market will closely watch its strategic manoeuvres and regulatory developments.