JPMorgan cut the target price for YES Bank shares to Rs 13.10 from Rs 21. This 38% cut followed a Supreme Court judgment on AT-1 bonds worth Rs 8,415 crore. The brokerage said the judgment could have a material impact on the bank's capital position and its future earnings growth.

Shares of private sector lender YES Bank Ltd have received a downgrade from JP Morgan. The global brokerage cut its target price to Rs 13.10 from Rs 21 earlier, after the Supreme Court judgment on Additional Tier-1 (AT-1) bonds writeoff worth Rs 8,415 crore. The fresh target amounts to a fall of 38% from the previous one .

Supreme Court's adverse judgment could have a material impact on YES Bank's capital position and earnings, the brokerage said, with more downside risks possible if coupon payments on the reinstated AT-1 bonds are revived.

Subsequently, the brokerage pared its FY27, FY28 and FY29 earnings estimates by 136.3%, 7.7% and 19.7%, respectively.

JPMorgan cautioned that the resumption of annual coupon payments, estimated at around Rs 770 crore, could weigh on YES Bank's profitability, potentially reducing its FY28 and FY29 earnings by another 10-11%. The additional payout could also strain the bank's capital position, limiting its ability to sustain growth. The brokerage pointed to the possibility of lower insurance commission income, which could add to the pressure on earnings.

Despite an improvement in operating performance, with YES Bank reporting a 65% year-on-year increase in Q2 FY27 net profit to Rs 1,080 crore, JPMorgan believes several structural weaknesses remain unresolved. These include subdued return on equity, relatively slower business growth and an underperforming deposit franchise.

The brokerage also warned that the transition to expected credit loss (ECL) provisioning norms in FY28 could put further pressure on the bank's capital adequacy buffer.

At around 0.87 times its estimated FY28 price-to-book value, Yes Bank's valuation may appear inexpensive. However, JPMorgan sees limited potential for a valuation re-rating given the earnings uncertainties and structural challenges. A possible additional equity investment by Japan's SMBC, meanwhile, remains a key potential catalyst for the stock, the brokerage added.

On Monday, YES Bank stock ended 2.70% higher at Rs 15.57 against the previous close of Rs 15.16. Market cap of the lender rose to Rs 48,873 crore. YES Bank shares are trading lower than the 5 day, 10 day, 20 day, 30 day, 50 day, 100 day, 150 day and 200 day moving averages.