YES Bank shares jump over 6%. 2 reasons behind the buying momentum

Here are the details:

Moody's upgrade in outlook

The change in outlook reflects Moody’s expectations that a gradual improvement in YES Bank's depositor base and lending franchise will help improve its core profitability over the next 12-18 months.

The positive outlook takes into account the improvement in the bank's asset quality and capitalization over the past 2-3 years, somewhat offset by the bank's weak core profitability driven by high funding costs and the strain from meeting priority sector lending (PSL) targets.

“We expect that YES Bank's core profitability, which is measured by pre-provisioning profits to total assets, will gradually improve to above 1.2% over the next 12-18 months from 0.8% in the financial year ended March 2024 (fiscal 2024),” Moody’s said.

Over the next 12 to 18 months, Moody’s expects the bank's capitalization to moderately decline because credit growth will outpace internal capital generation. However, they may downgrade YES Bank's ratings if its asset quality significantly deteriorates, leading to an erosion of its profitability and capitalization.

First Abu Dhabi Bank considering YES Bank stake

While First Abu Dhabi Bank is weighing in for a 51% stake in YES Bank, the stake sale has also drawn preliminary interest from Japan, including Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., as per reports.

However, it still remains unclear how strong their appetite for a deal is and whether they will proceed.

ET had earlier reported that considerations are ongoing and the potential size of the stake sale could change. The banks may also decide against pursuing a deal or some could consider other investment options.

YES Bank said this week it hasn’t received any in-principle approval from the Reserve Bank of India for a 51% stake sale.

State Bank of India has pared its holding in YES Bank after rescuing the lender four years ago when it was inundated with bad loans. It remains its biggest shareholder with a 24% stake. SBI’s chairman Dinesh Khara’s tenure is due to end in August, potentially delaying a deal involving Yes Bank. A government-appointed panel has recommended he be replaced by Challa Sreenivasulu Setty.

Shares of YES Bank have gained 54.7% in the last one year, while in the current calendar year, the stock has surged 17.5%.

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