The agency also changed its outlook on the credit rating of the bank to ‘positive’ from ‘stable’.

Moody's Ratings said that change in outlook to 'positive’ reflects the agency’s expectation that a gradual improvement in Yes Bank's depositor base and lending franchise will help improve its core profitability over the next 12-18 months.

The 'positive’ outlook takes into account the improvement in the bank's asset quality and capitalization over the past 2-3 years, somewhat offset by the bank's weak core profitability driven by high funding costs and the strain from meeting priority sector lending (PSL) targets.

The agency expects Yes Bank's core profitability, which is measured by pre-provisioning profits to total assets, will gradually improve to above 1.2% over the next 12-18 months from 0.8% in the financial year ended March 2024 (fiscal 2024).

An improvement in Yes Bank's ability to meet the central bank's PSL rules through new lending from its branches will help reduce operating expenses for meeting the targets, improving its overall profitability.

In addition, Yes Bank's lending focus on higher yielding, albeit higher-risk retail and small and medium enterprise segments will help widen its net interest margins.

A gradual increase in the bank's credit costs will be largely offset by recoveries from its legacy stressed assets, given the high loan loss provision coverage of those assets.

"Despite these improvements, Yes Bank's profitability will remain weak compared with the Indian peers we rate, and a key drag on further improvements to its credit profile,” Moody's said in a statement.

Yes Bank is a full service commercial bank providing a complete range of products, services and technology driven digital offerings, catering to Retail, MSME as well as corporate clients.

The bank's standalone net profit zoomed 123.23% to Rs 451.89 crore in Q4 FY24 as against Rs 202.43 crore reported in Q4 FY23. Total income grew by 24.87% year on year to Rs 9,015.77 crore in the quarter ended 31 March 2024.