JM Financial has lowered its 12-month target for Yes Bank to Rs 17, warning that the Supreme Court’s decision to reinstate the Rs 8,400 crore AT1 write-down could drive a post-tax loss and cut the lender’s CET1 ratio to 11.4 per cent.
JM Financial has cut its 12-month target price on Yes Bank to Rs 17 from Rs 22, while keeping a “Reduce” rating, after the Supreme Court upheld the reinstatement of the lender’s Rs 8,400 crore Additional Tier-1 bond write-down. The brokerage said the ruling could leave the bank facing a post-tax hit of about Rs 6,300 crore and trim its Common Equity Tier-1 capital ratio by roughly 230 basis points to 11.4 per cent. The reassessment comes as investors weigh the gap between Yes Bank’s improving operating numbers and the larger capital strain created by the court decision.
In its note, JM Financial said the AT1 bonds would be reflected through the profit and loss account rather than through an immediate cash payment of principal. That accounting treatment may soften the short-term liquidity effect, but it does not remove the hit to reported earnings or the pressure on capital ratios. The brokerage also flagged uncertainties around future security receipt recoveries, possible coupon payments on the reinstated AT1 securities and the bank’s dependence on fee income from third-party distribution.
The warning follows a quarter in which Yes Bank posted a 65 per cent rise in net profit to Rs 1,080 crore, helped by balance-sheet growth and lower provisions. Net interest income increased 22.7 per cent from a year earlier to about Rs 2,822 crore, while advances grew 23.7 per cent to Rs 3.09 lakh crore. Deposits rose 19.5 per cent to Rs 3.54 lakh crore, although JM Financial said growth excluding foreign currency non-resident deposits was largely driven by wholesale funding. The bank’s net interest margin slipped 10 basis points sequentially to 2.6 per cent, with foreign currency deposits shaving off about 12 to 14 basis points.
Yes Bank’s management has said margins should improve from the fourth quarter and that capital-raising options remain under consideration. The bank has separately estimated that the Supreme Court ruling could reduce its Common Equity Tier-1 ratio by about 250 basis points, while leaving its overall Tier-1 capital ratio unchanged at 14 per cent. Moody’s Ratings has also affirmed the bank’s Ba1 deposit ratings with a stable outlook, saying the verdict weakens capital and dents profitability, but does not alter the loss-absorbing role of AT1 instruments. Against that backdrop, JM Financial now expects a net loss of about Rs 2,093 crore in FY27 and has valued the stock at one times its estimated FY28 book value.
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