In today’s Finshots, we explain how Yes Bank rebuilt its foundation after one of the biggest crises in Indian banking history, and whether it is truly back.

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The Story

In March 2020, Yes Bank found itself at the centre of one of India's biggest banking crises. Once celebrated as one of the country's fastest-growing private lenders, the bank had spent years aggressively lending to large corporate groups, many of which were already under financial stress. When several of these borrowers defaulted, Yes Bank's balance sheet began to unravel. 

Panicked depositors rushed to withdraw their savings, investor confidence completely evaporated, and the RBI had to step in with an emergency moratorium capping withdrawals at ₹50,000. It took a massive rescue package led by SBI and a consortium of private banks to prevent the lender from collapsing entirely.

For years after the rescue, every quarterly result was scrutinised to see whether the bank was genuinely recovering or merely benefitting from regulatory support and one-off measures. Investors remained sceptical, customers were cautious, and the bank had to rebuild a reputation shattered almost overnight.

The turnaround, however, didn't happen overnight. Since the 2020 rescue, Yes Bank has spent years cleaning up its balance sheet, raising fresh capital, reducing bad loans and steadily returning to profitability. But this quarter marks an important milestone in that journey. 

In the first quarter of FY27, Yes Bank reported a net profit of ₹1,071 crore, up 33% year-on-year (YoY) and the first time it has crossed the ₹1,000 crore mark since the crisis. Gross NPAs declined further to 1.3% from 1.6% during the same quarter last year, continuing a multi-year improvement in asset quality. The bank has also attracted a strategic investor in Japan's Sumitomo Mitsui Banking Corporation (SMBC), which last year agreed to acquire a substantial stake from SBI and other consortium banks, becoming its largest shareholder.

That said, at the end of the day, for many investors, this raises a simple question: Is Yes Bank finally back?

To answer that, it's important to understand that banks are fundamentally different from most other businesses. If an automobile company reports higher profits after a difficult period, investors may conclude that demand has recovered. 

But banks don't manufacture products or own factories. Their business is built on confidence. Depositors hand over their savings because they trust the bank will safeguard them, and borrowers take long-term loans because they trust the bank will continue to finance them. Once that trust is broken, rebuilding it is often far more difficult than repairing a balance sheet.

So, when can we truly say that a failed bank has recovered?

Arguably, this is the more important question. And there isn't a single financial metric that can answer it. Instead, you have to look at a combination of indicators that collectively tell you whether a bank is merely surviving or genuinely becoming stronger. So, let's put Yes Bank through five simple tests.

1. Can it make money consistently? (Profitability)

One of the biggest signs that a bank is truly back on track is whether it's making money from its core business — lending and banking services, instead of relying on one-time gains.

In the years after its rescue, many critics argued that Yes Bank's profits were being propped up by treasury gains and recoveries from old stressed assets rather than healthy lending.

This quarter, however, tells a different story. Net interest income rose 17.5%, operating profit jumped more than 25%, and the management said this growth came despite a sharp fall in treasury income and recoveries from security receipts. So you could say that Yes Bank is increasingly making money from banking itself.

But there's another number investors watch closely: Return on Assets (RoA). It measures how much profit a bank earns for every rupee of assets it manages.

For Yes Bank, this metric has dramatically improved from -7.1% during the crisis to around 0.9% today. That's a huge turnaround. But it's still behind top private banks like HDFC Bank and ICICI Bank, both of which generate an RoA of over 1.5%.

2. Do customers trust it again? (Deposits & CASA)

For most businesses, revenue is the ultimate vote of confidence. For banks, it's deposits. If people don't trust a bank, they simply won't leave their money there.

That's why Yes Bank's deposit growth is perhaps one of the strongest indicators that confidence is returning. Deposits have grown by more than 14% year-on-year to over ₹3.15 lakh crore.

For a bank that witnessed a depositor panic in 2020, this suggests customers are once again willing to trust the institution with their savings. Similarly, advances have grown by over 18%, indicating that borrowers too are increasingly comfortable building long-term relationships with the bank.

But deposit growth alone doesn't tell the full story. Banks also care about where those deposits come from.

Money kept in Current and Savings Accounts (CASA) is especially valuable because it's usually cheaper for banks and customers tend to leave it there for longer. In Q1 FY27, Yes Bank's CASA ratio stood at 32.7%, while retail and branch deposits made up nearly 60% of its total deposits.

The bank has also become less dependent on a handful of large depositors. Instead, its deposits now come from a much wider pool of customers, making its funding base far more stable than it was during the crisis.

3. Is it lending responsibly? (Loan growth + NPAs)

A growing loan book is meaningless if the loans eventually go bad. That's precisely the mistake that pushed Yes Bank into a crisis in the first place. So, the real question isn't whether the bank is lending more, but whether it's lending better.

The numbers suggest meaningful progress. Gross NPAs (Non-Performing Assets or loans where borrowers haven’t repaid the principal or interest continuously for 90 days or more) have fallen to 1.3%, while net NPAs have declined to just 0.2% from a peak of 16.8%. Also, fewer fresh loans are turning bad, probably because the bank's underwriting standards have improved and new loans are being sanctioned more carefully than before.

Now, this didn’t happen overnight. In 2022, Yes Bank transferred nearly ₹48,000 crore worth of older NPAs to JC Flowers Asset Reconstruction Company. Think of it as moving decades of unresolved baggage into a separate vehicle so the bank could focus on writing new loans instead of constantly firefighting old ones and rebuilding from a much cleaner balance sheet.

More importantly, the bank appears to have changed where it lends. Before the crisis, Yes Bank had become heavily dependent on a handful of large corporate borrowers. Today, retail and SME loans account for nearly 60% of its loan book, compared to roughly 36% around FY20. And that’s a good thing because thousands of smaller loans are generally less risky than betting heavily on a few large corporate groups.

4. Can it survive another crisis? (Capital adequacy)

Even well-run banks experience bad loans during economic downturns. The difference is that healthy banks have enough capital to absorb those losses without threatening depositors or requiring regulatory intervention. This is where capital adequacy becomes an important measure of resilience rather than profitability.

As of Q1 FY27, Yes Bank's Capital Adequacy Ratio stood at 15.1%. That’s comfortably above the regulatory requirement of 9%, suggesting that the bank has a meaningful capital buffer against future shocks. 

5. Has it fixed its culture? (Governance & risk management)

This is perhaps the hardest question to answer because culture doesn't appear on a balance sheet. Financial ratios can improve within a few years, but changing an institution's approach to risk often takes much longer.

There are certainly encouraging signs. The management team that presided over the crisis is gone, underwriting standards appear tighter, and independent credit rating agencies have upgraded or initiated favourable ratings for the bank. 

Also, with the recent investment by Japan's SMBC, they have nominated senior risk executives to Yes Bank's board to bring in global risk management expertise into the bank's decision-making process.

But this is one test that cannot be judged after a handful of good quarters. Rather, this will depend on whether Yes Bank sails through the next economic slowdown. If it can continue growing without slipping back into aggressive lending or compromising on credit quality, only then can we confidently say that the lessons of 2020 have truly been learned.

So, is Yes Bank back?

Well, the answer depends on what you mean by "back". If the question is whether the bank has emerged from the existential crisis that threatened its survival in 2020, then the evidence increasingly points to yes.

But if the question is whether Yes Bank has once again become one of India's premier private-sector banks, we’d say that the verdict is still out. Sure, the bank has largely completed the difficult task of repairing its balance sheet. But the next challenge is proving it can grow responsibly, improve profitability, and compete with India's strongest private lenders without repeating past mistakes.

SMBC's investment suggests that global investors believe the turnaround has real substance. But turnarounds are only considered successful when they become sustainable businesses, not just cleaner ones.

In many ways, Yes Bank has already won the first battle. The second, and arguably harder one is convincing customers and investors that the bank's future will look nothing like its past.

Until then…

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Note: An earlier version of the story said SMBC has provided fresh capital. However, SMBC acquired shares only from existing shareholders and it was not fresh capital.

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