YES Bank shares fall 3% as CET1 ratio may fall 250 bps; Morgan Stanley, Citi targets

Shares of YES Bank Ltd fell 3 per cent in Friday's trade after the private lender said it is examining the Supreme Court (SC) judgment upholding the Bombay High Court ruling against the write-down of Additional Tier-1 (AT1) bonds worth Rs 8,415 crore in March 2020. Its initial estimates suggest 250 basis points impact on Common Equity Tier 1 (CET1) ratio.

Following the development, YES Bank shares fell 3.3 per cent to hit a low of Rs 17.55 on BSE. This was in addition to 14.53 per cent drop on the stock on Thursday. Morgan Stanley suggested 'Underweight' and a target of Rs 17 on the YES Bank stock. Citi suggested 'Sell' on YES Bank and a target of Rs 17.50 apiece.

The SC dismissed appeals filed by YES Bank, the Reserve Bank of India and the Union government against the Bombay High Court's January 20, 2023, judgment. The impact on common equity Tier 1 (CET1) is likely, YES Bank said.

"The bank is currently reviewing the order and its implications and will make suitable disclosures in due course. Particularly with respect to Capital adequacy, proforma impact of re-instatement of AT1 Bonds principal amount on CET1 Ratio (including Profits) as on June 30, 2026 is expected to be 250 bps. Tier1 Ratio on a proforma basis to remain unimpacted at 14.0 per cent," YES Bank said.

Kotak Institutional Equities, however, anticipated CET-1 to decline 450 bps to 9.3 per cent, increasing the likelihood of a capital raise.

While the bank will remain above regulatory requirements, management may need to accelerate capital strengthening efforts, the domestic brokerage said  as it maintained 'Sell' on the stock. The brokerage said it would revisit its fair value after management commentary and earnings.

"There would be 25-30 per cent impact on FY26 net worth. We have not yet built these estimates in our model, and the bank has also not made any contingent provisions thus far. We will incorporate this post our discussion with management after the results tomorrow," Kotak said.

YES Bank said it was examining the judgment in detail, including evaluating all available legal options and the steps it could take going forward. It added that it had access to appropriate capital-management levers and retained the flexibility to undertake additional capital actions, as considered appropriate, to pursue its growth objectives.

The bank said it remained focused on strengthening its franchise and providing customers with consistent service and support across their banking requirements.