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Yes Bank Shares Fall 4% on Citi 'Sell' Call; Axis Bank on 'Positive Watch'

· · 2 min read

Yes Bank shares dropped nearly 4% after Citi recommended a 'Sell' rating, citing concerns over large FCNR(B)-linked inflows. Conversely, Axis Bank was placed on a "30-day positive catalyst watch" ahead of its September quarter results, despite a broader market decline.

Shares of Yes Bank Ltd experienced a notable decline of nearly 4% in Monday's trading session, following a 'Sell' recommendation issued by foreign brokerage Citi. The private lender's stock fell 3.87% to a low of Rs 21.59 on the BSE, with Citi setting a target price of Rs 22.

Citi placed Yes Bank on a 'negative watch', citing concerns over the potential impact of substantial FCNR(B)-linked inflows on the bank's earnings. These inflows, estimated at around $133 billion across the banking sector, represent approximately 4.5% of total deposits and are expected to significantly inflate bank balance sheets.

Axis Bank on Positive Catalyst Watch

In contrast, Axis Bank Ltd, despite a slight dip of 0.66% to Rs 1,212 amidst a broader market selloff, was placed on a "30-day positive catalyst watch" by Citi. This optimistic outlook comes ahead of its upcoming September quarter results.

Citi projects strong performance for Axis Bank, anticipating a 1.7% return on assets and a 16% return on equity. The brokerage also forecasts a significant 40% year-on-year rise in profit after tax for Axis Bank as its balance sheet expands due to the inflows.

Broader Impact of FCNR(B) Inflows

Citi's analysis highlights that the second quarter of FY27 (2QFY27) is shaping up to be a challenging period for financial modeling, with FCNR(B) and OFCB-linked inflows distorting nearly every reported metric. While these inflows are expected to boost Net Interest Income (NII) and pre-provision operating profit, they are also projected to cause an "optical NIM compression" of 5-15 basis points.

This compression is attributed to the enlarged balance sheet denominator and thin incremental margins. Despite this, Citi anticipates that private banks could collectively report NII growth of 12-25% and pre-provision operating profit (PPOP) growth of 15-20%.

Specifically, Citi expects Net Interest Margin (NIM) to decline by approximately 12 basis points for Yes Bank and ICICI Bank, 10 basis points for Kotak Mahindra Bank, 8 basis points for Axis Bank, and 2 basis points for HDFC Bank Ltd.

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