How did Yes Bank’s Q1 FY26 financial results show strong profit growth, stable asset quality, and retail deposit momentum despite macro headwinds?
Yes Bank Limited (NSE: YESBANK, BSE: 532648) posted a net profit of ₹801 crore for the first quarter of FY26, a 59.4% year-on-year (YoY) rise and 8.5% quarter-on-quarter (QoQ) increase, extending its profit streak to seven consecutive quarters. The stock closed at ₹20.19 on July 18, 2025, up 0.25%, reflecting cautious optimism from investors ahead of further institutional inflows following the recent strategic stake acquisition agreement.
The private sector lender reported a return on assets of 0.8% against 0.5% a year ago, while its net interest margin remained steady at 2.5%, up 10 basis points YoY. Operating profit surged 53.4% YoY to ₹1,358 crore, supported by 46.1% YoY growth in non-interest income at ₹1,752 crore, largely driven by treasury gains.
According to institutional investors tracking the stock, the steady improvement in profitability and a stable asset quality profile suggest that the lender’s post-reconstruction strategy is gradually translating into sustainable earnings. Credit rating upgrades by Moody’s (Ba2, stable outlook) and domestic agencies like CARE and ICRA, alongside an upcoming equity stake acquisition by Sumitomo Mitsui Banking Corporation (SMBC), have further boosted investor confidence in the lender’s fundamentals.
What are the key financial drivers behind Yes Bank’s 59% YoY profit growth and how did cost management influence margins?
Yes Bank’s net interest income rose 5.7% YoY to ₹2,371 crore, aided by a 20 basis points reduction in the cost of deposits to 5.9%. Non-interest income also benefited from treasury income and better fee collections, although core fees grew modestly by 3% YoY due to a decline in digital banking fee contributions.
The cost-to-income ratio improved sharply to 67.1% from 74.3% in Q1 FY25, despite operating expenses increasing 8.1% YoY to ₹2,766 crore, reflecting better operating leverage from branch-led deposit mobilization and digital onboarding initiatives. Excluding priority sector lending certificate (PSLC) costs, operating expenses grew 5.7% YoY, indicating tighter cost discipline.
Provisions (non-tax) stood at ₹284 crore, up 34.1% YoY, although they were 10.7% lower sequentially. Analysts noted that the steady decline in provisions as a share of total assets, coupled with improving recoveries from security receipts (₹338 crore in Q1 FY26), could support further margin expansion in the coming quarters.
How did retail and branch banking deposits drive balance sheet growth and why is CASA momentum crucial for Yes Bank’s recovery?
Total deposits grew 4.1% YoY to ₹2.76 lakh crore, with a sharp 10.8% YoY rise in current and savings account (CASA) deposits, lifting the CASA ratio to 32.8% from 30.8% a year ago. Retail and branch-led granular deposits jumped 20% YoY to ₹1.68 lakh crore, with the retail CASA ratio improving to 38.2%.
Yes Bank’s retail-focused approach has significantly altered its deposit mix, with CASA and retail term deposits now accounting for 65.5% of total deposits, compared to 57.6% in Q1 FY25. Retail CASA account openings remained strong at 2.51 lakh in Q1 FY26, while average daily retail savings account balances rose 35.3% YoY.
Institutional sentiment indicates that the bank’s granular deposit growth and branch-led liability outperformance, which has exceeded private bank industry growth rates, could reduce funding costs further and support sustainable net interest margins over the medium term.
What does Yes Bank’s asset quality profile reveal about its resolution momentum and credit growth strategy?
Gross non-performing assets (GNPA) remained stable at 1.6%, while net NPAs dropped to 0.3% from 0.5% a year ago. Provision coverage improved to 80.2% versus 67.6% in Q1 FY25, underlining stronger buffer creation. Restructured advances declined sharply to ₹378 crore, now just 0.2% of advances compared to 1.6% in Q1 FY25.
Total recoveries and upgrades stood at ₹1,170 crore for the quarter, reinforcing resolution momentum. Gross slippages increased sequentially to ₹1,458 crore (2.4% of advances), but net slippages remained contained at ₹805 crore.
Credit growth was modest, with net advances rising 5% YoY to ₹2.41 lakh crore. Commercial banking advances grew 19% YoY, and micro-banking expanded 11.2% YoY, offsetting slower growth in retail banking (0.3% YoY) due to calibrated underwriting in sub-segments.
How are capital adequacy, institutional stake sales, and credit rating upgrades shaping Yes Bank’s investor outlook?
Yes Bank’s capital position strengthened further, with the Common Equity Tier 1 (CET1) ratio improving to 14% from 13.3% in Q1 FY25, supported by a healthy liquidity coverage ratio (LCR) of 135.8%. The credit rating upgrades and SMBC’s definitive agreement to acquire approximately 20% equity from State Bank of India and other lenders have been interpreted by institutional investors as a vote of confidence in Yes Bank’s turnaround.
Analysts believe that the entry of a global strategic investor could improve governance, accelerate digital lending initiatives, and help diversify the loan book further, particularly in mid-market commercial banking and high-quality retail credit segments.
Market sentiment remains moderately positive, with institutional investors expecting steady earnings growth, supported by lower funding costs, rising retail deposit share, and strong resolution momentum in stressed assets.
What is the outlook for Yes Bank’s earnings growth and valuation in FY26 given current trends in profitability and asset quality?
Institutional sentiment suggests that the private sector lender’s earnings momentum is likely to continue, driven by steady net interest margins, treasury gains, and further cost efficiencies. The higher return on equity of 6.6% compared to 4.5% a year ago, alongside improved credit ratings, could attract more long-term institutional investors in the coming quarters.
However, analysts also caution that sustaining asset quality improvements while expanding commercial banking and retail lending could test risk management systems, especially in a competitive credit environment. Future profitability may hinge on maintaining low-cost deposit growth and leveraging digital platforms for customer acquisition while preserving credit discipline.
With the stock trading at ₹20.19 and an adjusted price-to-earnings (P/E) ratio of 25.86 based on trailing earnings, market watchers expect range-bound movement in the near term as investors await clearer guidance on loan growth and margin sustainability. Retail participation has remained steady, but institutional flows are still cautious, reflecting a preference for banks with higher return on equity and a more diversified credit portfolio. However, analysts suggest that a potential re-rating cannot be ruled out if profitability consistently outperforms management’s guidance, aided by stable net interest margins and improving resolution momentum in stressed assets.
The planned equity infusion by Sumitomo Mitsui Banking Corporation (SMBC), which is set to acquire around 20% from State Bank of India and other lenders, is being viewed as a strategic milestone that could strengthen capital buffers and enhance investor confidence in governance standards. If the transaction closes on schedule and is followed by sustained improvements in return on equity and credit growth, institutional investors believe that Yes Bank could gradually trade closer to larger private sector peers in valuation terms. This would particularly hold true if retail-led deposit traction continues to outpace industry averages, helping reduce funding costs further in FY26.
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