YES Bank shares: 10 reasons why ICRA upgraded credit rating for infra bonds

YES Bank shares are in focus on Tuesday morning after credit rating agency ICRA upgraded or reaffirmed its rating on Rs 24,460.80 crore worth infrastructure and Basel III bonds. The rating for Infrastructure Bonds and Basel III Tier II Bonds were upgraded to ICRA AA- / Stable. 

ICRA said the rating upgrade factors in the steady increase in YES Bank's scale of operations, the improving mix of the loan book with the growing share of granular loans, and the continued decline in the stressed assets pool, which provides some stability to the earnings and capital position. 

"ICRA also takes note of the steady recoveries from the security receipts (SRs), which helped the bank report an improvement in its overall profitability. ICRA expects the recoveries (though moderating) to keep supporting the bank’s profitability in the near term while it would continue with its efforts to improve its core operating profitability further for a sustainable and healthy profitability profile. ICRA also notes the planned stake acquisition by Sumitomo Mitsui Banking Corporation1," ICRA said.

SMBC will be the single largest shareholder once the required approvals are received.

ICRA said the ratings remain supported by the adequate capitalisation and steady deposit growth, though the share of wholesale deposits stays high. 

The vulnerable book -- comprising 31-90 days overdue and the standard restructured book, has also declined to 10 per cent of the overall core capital as on March 31, 2025 from nearly 21.2 oer cent as on March 31, 2024, though it remains monitorable. 

"With the declining pool of stressed assets, YES bank's gross slippage rate has also been declining. This, along with recoveries, helped the bank report lower net credit costs. 

"However, the ratings also consider the below-average interest spreads on account of the high funding costs, drag of high share of low-yielding assets {deposits towards shortfall in priority sector lending (PSL)}, and the elevated cost-to-income ratio, which lead to weak operating profitability and return metrics. While deposit growth has been appreciable, the share of corporate/wholesale deposits remains relatively high," ICRA said.

ICRA said YES Bank's ability to continue to scale up its loan book, granularise its deposit franchise further and improve its funding cost will remain key for an improvement in its core operating profitability. Additionally, its ability to limit slippages from the residual vulnerable book will remain key for keeping the credit costs in check, given its relatively thin operating profitability level.