Why Emkay Global has Sell call on YES Bank despite Sumitomo picking stake?

Analysts believe, for YES Bank, the coming quarters will be pivotal. The incoming leadership, coupled with SMBC's strategic push, may just offer the bank a second chance to engineer a turnaround

Despite Sumitomo Mitsui Banking Corp (SMBC) purchasing a significant stake in YES Bank, analysts at Emkay Global Financial Services have maintained their 'Sell' rating on the stock citing 'rich valuations'.

 

The brokerage values YES Bank stock at 1.2-times adjusted book value (ABV) (based on financial year 2026-27 (FY27) earnings estimates) which, it believes, is an expensive valuation relative to the lender's core profitability.

 

"YES Bank's core-profitability (pre-provision operating profit at 0.9 per cent of assets) remains sub-par, given the slower growth, lower margin (partly due to drag from industry's high RIDF pool at ₹37,000 crore/15 per cent of loans), and higher operational cost," Emkay Global said.

 

 

Going ahead, Emkay Global analysts think a potential leadership transition, coupled with strategic influence of SMBC, could grant another opportunity to YES Bank to attempt a long-awaited turnaround in its fortunes and, thus, aid financial recovery.

 

YES Bank turnaround: The progress so far

Private lender YES Bank set out on a new course in March 2020, when the Reserve Bank of India (RBI) handed over the reins of the bank in the hands of State Bank of India (SBI).

 

As a part of its restructuring plan, YES Bank pivoted from a corporate heavy portfolio (68-70 per cent) toward retail (49 per cent) and Commercial Banking/SME (25 per cent), to avoid lumpy corporate asset quality shocks and drive better risk-adjusted return on capital (RaRoC).

 

But in execution, the retail strategy has stumbled.

 

Over the past few quarters, YES Bank's retail portfolio has been shrinking, plagued by rising asset quality concerns. Gross non-performing assets (NPAs) ticked up to 2.3 per cent in the April-June quarter of the current financial year (Q1FY26), and losses continue to mount in the segment.

 

The drawdown, Emkay Global said, can be blamed on the bank’s overdependence on direct selling agents (DSAs) and a relatively high-risk lending profile.

 

Nonetheless, YES Bank has pulled back from certain areas with new home loan disbursements being capped, and both personal loan and vehicle finance books being scaled down. The lone exception is its credit card portfolio, which continues to grow aggressively.

 

On its part, the management has guided for a modest 8-per cent retail growth in FY26, with hopes for double-digit expansion only by FY27.

 

"While commercial banking remains a growth driver for now (up 19 per cent year-on-year in Q1), we believe it could come under pressure amid the rising asset quality risk," Emkay cautioned.

 

Overall, the bank expects loan growth to be sub-par at 8-9 per cent in FY26 (up from 5 per cent now), moving to the low-teens in FY27.

 

Sumitomo's stake purchase: Another attempt at turnaround?

Against this, Sumitomo Mitsui Banking Corporation has secured regulatory approvals from the RBI to acquire a 24.99 per cent stake in YES Bank. The Japanese lender has already picked up a 20 per cent stake from other banks and could acquire the remaining 4.99-per cent stake via secondary markets or during future capital raises.

 

Notably, SMBC will have a significant influence on YES Bank’s Board, despite not having majority control, as it will have two board seats and a voice in selecting the next managing director and chief executive officer (MD & CEO) after Prashant Kumar steps down.

 

SBI's earlier involvement, as per Emkay Global, helped YES Bank stabilise its deposit base. Now, SMBC's entry could signal another inflection point—potentially triggering a reset in retail and SME asset strategy, while also offering access to more stable capital, enhanced governance, and management overhaul, it said, adding that a portfolio clean-up could be on the cards.

 

In this backdrop, Emkay Global believes if the bank continues to witness higher provision reversal, it may support its profitability, helping it achieve the 1-per cent exit RoA target in FY27 (vs 0.8 per cent now), subject to no major asset-quality disruption.

 

"We revise up our earnings estimate by ~7-15 per cent, building in higher security receipts (SR) income and some cost rationalisation, as YES Bank shifts toward branch-led loan sourcing. We expect RoA of 0.8-1 per cent over FY26-28E," Emkay Global said.