Yes Bank shares slump nearly 4% as Nomura cuts target price to Rs 18 after AT1 bond verdict

The verdict could also reduce the bank's common equity tier-1 (CET1) ratio by approximately 230 basis points from the current 13.7%. "The bank is evaluating the judgment and its implications, including potential capital actions and the payment of past coupons," the brokerage said. Nomura noted that the reinstatement of AT1 bonds would affect Yes Bank's Q2FY27 shareholders' equity by around 12%. The stock has declined around 20% since the judgment and trades at 0.9 times its September 2028 estimated book value per share (BVPS).

Higher expenses, lower fees weigh on core earnings Nomura said Yes Bank reported a stable quarter, with profit before tax (PBT) in line with estimates at Rs 1,360 crore, up 4% quarter-on-quarter. Slightly better net interest income (NII) and treasury income supported the performance, despite higher-than-expected operating expenses and credit costs. The bank's calculated net interest margin (NIM) declined 10 basis points sequentially to 2.69%, resulting in NII of Rs 2,820 crore, 1% above Nomura's estimate.

The brokerage said the margin decline was "almost entirely attributable to FCNR(B) deposits". Lower fee income, which was 2% below estimates, and operating expenses, which were 3% above estimates, resulted in a 5% miss in core pre-provision operating profit (PPOP). Operating expenses included a Rs 30-crore impact from labour codes. However, treasury income of Rs 160 crore, against Nomura's estimate of Rs 50 crore, and a lower tax rate of 20%, compared with its estimate of 25%, offset the slight miss on credit costs.

Credit costs stood at 43 basis points against the brokerage's estimate of 40 basis points, while the lower tax rate supported a PAT beat of 6% against estimates. Retail growth improves, asset quality remains stable Retail loan growth improved to 9% year-on-year in Q2FY27 from 7% in Q1FY27, but remained slow, Nomura said. Corporate banking, with 30% growth, and commercial banking, with 20% growth, led overall loan growth of 18% year-on-year.

Gross and net slippage ratios stood at 139 basis points and 85 basis points, respectively, changing by +1 basis point and -6 basis points quarter-on-quarter. Retail slippages stabilised at 2.7%, unchanged sequentially, compared with 4% in Q2FY26. Nomura cuts earnings estimates Nomura revised its FY27 and FY28 loan growth estimates by +650 basis points and -250 basis points, respectively. It also factored in lower fee income in FY28 due to a potential cut in bancassurance commissions, partly offset by merchant discount rate (MDR) fees.

Higher operating expenses and normalising credit costs led the brokerage to cut its FY27-28 earnings per share estimates by 2-13%, adjusted for the AT1 impact.