Global Agency Affirms Ba1 Stable Outlook Despite Supreme Court’s
Global rating agency Moody's Ratings has reaffirmed YES Bank’s long-term foreign currency and local currency bank deposit ratings at Ba1 while maintaining its outlook as Stable on Tuesday, October 20, 2026. The agency simultaneously retained the private lender's Baseline Credit Assessment (BCA) and Adjusted BCA at ba2, with long-term issuer ratings and counterparty risk assessments remaining unchanged. Moody’s noted that the Ba1 deposit rating sits one notch above the bank’s ba2 BCA, factoring in a moderate probability of systemic support from the Indian government in times of extraordinary distress. The affirmation provides crucial reassurance to institutional investors and depositors following elevated market anxiety after the Supreme Court ordered the restoration of Additional Tier-1 (AT1) bonds that were written down during the bank’s March 2020 reconstruction scheme.
Capital Headwinds: Supreme Court AT-1 Ruling Weighs on CET1, But Tier-1 Stays Resilient
The rating review followed the landmark October 15 verdict by the Supreme Court of India, which upheld a previous Bombay High Court ruling nullifying the write-off of YES Bank’s AT-1 bonds worth approximately ₹8,400 crore. Dismissing appeals lodged jointly by YES Bank, the Reserve Bank of India (RBI), and the Central Government, the apex court ruled that the write-off bypassed statutory and legal procedures. Moody’s analysis reveals that reinstating these liabilities will dilute core capital adequacy, with bank management estimating that the Common Equity Tier-1 (CET1) ratio will decline from 13.7 percent to 11.4 percent on a pro-forma basis as of September 2026. However, because AT-1 instruments are absorbed back into the overall capital stack, the bank’s broader Tier-1 capital ratio will remain largely stable, though the bank will likely incur a one-time accounting drag on its near-term net profitability.
Improving Balance Sheet Metrics: 1.2% Gross NPLs, Robust Liquidity, and Key Rating Triggers
Offsetting capital pressures, Moody’s emphasized that YES Bank has engineered a steady operational recovery over recent quarters, despite its funding franchise remaining somewhat narrower than premier Indian banking peers. The private lender demonstrated strong liquidity buffers, clocking a Liquidity Coverage Ratio (LCR) of 131 percent at the end of the September 2026 quarter—well above peer benchmarks—with High-Quality Liquid Assets (HQLA) representing 17.9 percent of tangible banking assets as of March 2026. Concurrently, gross non-performing loans (NPLs) receded to 1.2 percent by September 2026, while annualized return on tangible assets improved to 0.8 percent for the first half of FY27, up from 0.7 percent in the prior-year period. Moody’s cautioned that credit costs could inch higher as legacy NPA recoveries taper off, particularly given rapid portfolio expansion in retail and SME credit segments. The rating agency specified that an upward rating revision would depend on sustaining gross NPL stability, preserving a robust capital buffer, and improving structural profitability, whereas a slide in the Tangible Common Equity (TCE) to risk-weighted assets ratio below 11 percent without a concrete recapitalization plan could prompt negative rating action.
