The development comes months after the private lender's financial position worsened and its board was superseded by the Reserve Bank of India, leading to a rescue effort.
The rating agency said that the upgrade factors various positive developments on the bank's financial profile.
Consequently, ratings on infrastructure bonds and 'Basel II compliant lower tier II bonds' were raised to 'BBB' from 'BB+'.
Similarly, 'Basel III compliant tier II bonds' were upgraded to 'BBB-' from 'BB'.
"The rating upgrade factors in the sizeable capital raise of Rs 15,000 crore in July 2020, which has resulted in an improvement in the capital ratios of Yes Bank," ICRA said in its statement.
This is the second such upgrade the private bank has seen since its follow-o n public offer in July.
On August 3, Moody's had raised Yes Bank's long term issuer rating by a notch to 'B3 from Caa1'.
Additionally, ICRA also considered the improvement in the bank's liquidity position after the stability and subsequent increase in its deposit base.
This, coupled with the recent capital raise, has helped Yes Bank fully repay the special liquidity facility extended to it by the Reserve Bank of India, ICRA said.
While addressing shareholders during an annual general meeting on September 10, Yes Bank Chairman Sunil Mehta said the lender had managed to repay the entire Rs 50,000 crore it owed to the RBI under the special liquidity facility .