YES Bank shares: Goldman Sachs retains 'Sell' rating post Q2 update, says this

Goldman Sachs has retained its 'Sell' call on YES Bank Ltd following the lender's healthy September quarter business update. The global investment bank said its relative 'Sell' on the stock is based on expectations that any improvement in return on assets (RoA) going ahead will be capped by moderating CASA ratios and the tapering of legacy loan recoveries from FY28 onwards. This will likely keep RoA constrained in the 1-1.2 per cent range despite the rundown of low-yielding RIDF assets.

"Coupled with a weaker starting capital position (CET1 at 14 per cent) and expensive valuations (1.1 times FY28E P/B for a 1 per cent expected RoA), we think the risk-reward ratio remains unfavorable," Goldman Sachs, which has a target of Rs 22 on the stock, said.

Heading into Q2 results, Goldman Sachs expects investor focus on YES Bank to centre on margin trajectory on a normalized basis and fee income trajectory, given the potential impact of proposed insurance regulations on distribution commission.

The impact, however, may be partly offset by benefits from MDR on UPI P2M transactions, effective October 15, 2026, Goldman Sachs said.

It said the outlook on credit cost normalisation over the next few years will also be watched as the pace of recoveries from the legacy book moderates.

On the Q2 business update, Goldman Sachs said YES Bank received FCNR-B deposits of Rs 18,700 crore, of which 81 per cent was funded by foreign currency term loans. On a normalized basis, loan growth moderated to 17.7 per cent against 18.3 per cent last quarter. Sequentially, growth was up 3.3 per cent against 4.3 per cent last quarter.

At 10.40 am, the YES Bank stock was up 1.8 per cent at Rs 21.08 apiece. The 12-month Bloomberg consensus target on the stock at 21.09 suggests upside is capped for the stock.

Including FCTL, loans grew 23.8 per cent YoY and 8.6 per cent QoQ, versus Goldman Sachs' estimate of 20 per cent YoY and 5 per cent QoQ. On a normalized basis, deposit growth moderated to 13.2 per cent YoY from 14.3 per cent last quarter.

"Sequentially, growth was strong at +6.5 per cent (vs. decline of 1 per cent last quarter), led by a sharp increase in certificate of deposits (Rs 11,400 crore vs. Rs 6,600 crore) and healthy term deposit growth (+5.9 per cent QoQ), while CASA deposits grew by +3 per cent QoQ. Including FCNR-B, deposits grew by +19.5 per cent YoY / +12.3 per cent QoQ vs. our estimate of +15 per cent YoY / +8 per cent QoQ," Goldman Sachs said.