ICRA Downgrades Yes Bank’s Long Term Rating On Increased Stress

Ratings agency ICRA Ltd. has downgraded the long term credit rating for Yes Bank Ltd., citing increased stress on its loan book and weak capital position. The ratings agency has cut the rating on nearly Rs 32,000 crore worth of bonds.

According to ICRA, the Yes Bank downgrade takes into account an increase in the proportion of assets rated BB or below on its loan book. The private sector lender’s gross non-performing assets and BB and below rated exposure increased to Rs 41,558 crore as on June 30 from Rs 30,772 crore as on March 31, ICRA said.

• The rating on Yes Bank’s Basel-III compliant Tier-1 bonds worth Rs 10,800 crore was reduced to BBB from A.
• The bank’s Basel-III compliant Tier-2 bonds worth Rs 10,900 crore were downgraded to A+ from AA-.
• The rating on the Additional Tier-1 bonds have been brought down by two notches, due to their loss absorption features, which are closely linked to the bank’s capital adequacy.

ICRA also takes into account the moderation in Yes Bank’s core equity Tier-1 capital ratio, which stood at 8 percent as of June 30, compared with 8.4 percent in the preceding quarter. The Reserve Bank of India requires banks to maintain a minimum CET-1 ratio of 8 percent by March 2020. Thus, ICRA believes, the bank will have to raise capital on an immediate basis.

“While the board has approved a capital raise of $1 billion, Yes Bank’s ability to raise capital considering its recent performance and earnings guidance remains to be seen. The bank will also need to accelerate the resolution and recovery from stressed exposures and will also need to calibrate growth to restore the capital cushion,” the rating agency said.

In its note, ICRA said that the guidance given by Yes Bank’s management, with respect to the focus on improving the bank’s liabilities franchise as well as increasing the share of retail and small business loans are both positive.

However, these strengths are offset by the deterioration in Yes Bank’s asset quality, increase in the stressed portfolio, weakened capital cushion, the relatively high though steadily declining share of wholesale liabilities, as well as the relatively high exposure to the corporate sector, the rating agency said.

The private sector lender reported a net profit of Rs 114 crore in the June quarter, down 91 percent from a year ago. Provisions rose to Rs 1,784 crore from Rs 626 crore in the same period.