UBS downgraded IndusInd Bank to sell and cut target to Rs 1,400 from Rs 1,700 earlier. In the case of Yes Bank, the brokerage maintained sell rating and slashed the target to Rs 90 from Rs 170 apiece.
"Lending to non-investment grade companies against main companies is high for both banks, which does not appear to be fully priced in," UBS said in a report.
It also added that the concentration of lending to weak companies is also high for Yes Bank, ICICI Bank and Punjab National Bank.
Another reason for the fall in Yes Bank and IndusInd Bank is their exposure to Dewan Housing Finance Corporation, which defaulted on interest repayment last week.
On Wednesday, Moody's placed Yes Bank's Ba1 foreign currency issuer rating under review for a downgrade. The US credit rating agency said the review takes into account ongoing liquidity pressures on finance companies, which may negatively impact the credit profile of Yes Bank, given its sizeable exposure to weak companies in the sector.