Yes Bank's Infrastructure and Basel III Tier II bonds were upgraded by ICRA. However, Basel III Tier I bonds remain rated D, with a Supreme Court judgment pending. SMBC's stake acquisition is a positive.

Yes Bank's Bond Ratings See Mixed Fortunes Amidst Strategic Investments

Yes Bank's Infrastructure Bonds and Basel III Tier II Bonds have been upgraded to '[ICRA]AA (Stable)' by ICRA. However, its Basel III Tier I Bonds have been reaffirmed at '[ICRA]D'.

Reader Takeaway: Bond upgrades signal improving credit health, but Tier I bond uncertainty poses a key risk.

What just happened

Credit rating agency ICRA has upgraded Yes Bank's Infrastructure Bonds and Basel III Tier II Bonds to '[ICRA]AA (Stable)'. Conversely, the bank's Basel III Tier I Bonds have been reaffirmed at '[ICRA]D'.

Why this matters

The upgrades suggest enhanced confidence in Yes Bank's creditworthiness for certain debt instruments. However, the continued low rating on Tier I bonds highlights a significant ongoing risk related to potential write-offs, with a crucial Supreme Court judgment pending.

The backstory

Yes Bank has been undergoing a significant transformation following its recent capital infusion and strategic restructuring. In September 2025, Sumitomo Mitsui Banking Corporation (SMBC) acquired a 24.9% stake, becoming the largest shareholder. This was a critical step in stabilizing the bank's financial position.

The bank has also focused on improving its asset quality, with Gross Non-Performing Assets (NPAs) reducing to 1.30% in FY2026 from 1.58% in FY2025, and Net NPAs falling to 0.24% from 0.33%.

What changes now

The upgrade for Infrastructure and Tier II bonds may lead to better borrowing costs for these instruments. The presence of SMBC as a major shareholder is expected to provide strategic support and financial stability. However, the uncertainty surrounding the Tier I bonds continues to be a major overhang.

Risks to watch

The primary risk is the impending Supreme Court judgment concerning the write-back of Basel III Tier I bonds, amounting to ₹8,415 crore. An adverse decision could impact the bank's Common Equity Tier I (CET I) capital ratio and overall solvency.

Another point of concern is the bank's operating profitability, particularly its cost-to-income ratio, which remains relatively high when compared to its private sector peers.

Peer comparison

While Yes Bank's Gross and Net NPAs have shown improvement, its cost-to-income ratio requires attention when compared to more established private sector banks that typically operate with greater efficiency.

Context metrics (time-bound)

• Total Income: ₹15,826 crore (FY2026) vs. ₹14,358 crore (FY2025)
• Profit After Tax: ₹3,476 crore (FY2026) vs. ₹2,406 crore (FY2025)
• Total Assets: ₹4.69 lakh crore (FY2026) vs. ₹4.23 lakh crore (FY2025)
• Gross NPAs: 1.30% (FY2026) vs. 1.58% (FY2025)
• Net NPAs: 0.24% (FY2026) vs. 0.33% (FY2025)
• SMBC Stake Acquisition: Completed September 2025 (24.9% stake)
• Tier I Bond Write-back: ₹8,415 crore

What to track next

Investors should closely monitor the Supreme Court's decision on the Tier I bonds. Further improvements in operating efficiency and continued asset quality management will be key indicators of the bank's sustained recovery.