YES Bank shares fall 4% on Citi's negative watch; Axis Bank also in focus

Shares of YES Bank Ltd fell 4 per cent in Monday's trade after foreign brokerage Citi placed the private lender on a 'negative watch' as it assesses the impact of large FCNR(B)-linked inflows on lenders' earnings. Citi, on the other hand, placed Axis Bank Ltd on a "30-day positive catalyst watch" ahead of September quarter results, Bloomberg reported.

In the case of YES bank, the lender declined 3.87 per cent to hit a low of Rs 21.59 on BSE. Citi suggested a 'Sell' and a target of Rs 22 on the stock.  Axis Bank also fell amid a broader market selloff, with the stock slipping 0.66 per cent to Rs 1,212 apiece.

Citi said about $133 billion of FCNR(B) inflows, equivalent to 4.5 per cent of deposits, to inflate banks’ balance sheets, “2QFY27 is shaping up as the toughest quarter to model, with FCNR(B)/OFCB-linked inflows distorting nearly every reported metric,” it said.

The foreign brokerage expects Axis Bank to deliver a 1.7 per cent return on assets and 16 per cent return on equity as its balance sheet expands, with profit after tax rising 40 per cent YoY.

"While the inflows should boost NII and pre-provision operating profit, the enlarged balance-sheet denominator and thin incremental margins are expected to cause 5-15bps of optical NIM compression," Citi said.

Private banks could eventually report 12-25 per cent NII growth and 15-20 per cent PPOP growth, Citi said.

It sees net interest margin (NIM) declining about 12 bps for YES Bank and ICICI Bank; 10 bps for Kotak Mahindra Bank, 8bps for Axis Bank and 2bps for HDFC Bank Ltd.