Moody’s Places Yes Bank Under Rating Review For Downgrade

Moody's Investors Service placed Yes Bank Ltd.'s credit rating under review for a potential downgrade due to the bank's weak financial position and exposure to stressed borrowers.

The rating agency said that Yes Bank's asset quality has substantially deteriorated with gross non-performing loans rising to 7.6 percent as of September from 3.2 percent in March. With around Rs 31,400 crore worth of loans and investments made by the bank rated below investment grade level, the rating agency expects about 30-40 percent of the loans and investments to turn into non-performing assets in the next few quarters.

The rating agency estimates Yes Bank's total stressed assets stood at around 12 percent of its loans and investments as of Sept. 30, after considering the reported NPAs and the management's expectation of further stress emanating from the below investment grade rated exposures and other stressed assets, it said.

Credit Ratings Under Review For Downgrade:

• Long-term foreign and local current bank deposits: Ba3
• Foreign currency senior unsecured medium-term-notes: (P)Ba3
• Long-term counterparty risk assessment: Ba2(cr)
• Foreign currency counterparty risk rating: Ba2
• Baseline credit assessment: b1

For Yes Bank's IFSC Banking Unit Branch, Moody's has placed its long-term credit rating of Ba2 (cr), its foreign currency senior unsecured medium-term-notes rating of (P)Ba3 and the long-term domestic and foreign currency counterparty risk rating of Ba2, under review for downgrade.

Moody's said it could downgrade the bank's credit rating if the lender is unable to raise capital or there's a deterioration in asset quality and the bank's fundraising and liquidity position weakens.

Yes Bank had a 6 percent exposure to housing financiers and non-bank lenders as of September. It also had a 7.2 percent direct exposure to commercial and residential real-estate sector.

The rating agency said the bank has a weak “loan-loss coverage” ratio or provisions buffer against stressed assets at 30-35 percent, given the experience of loan defaults of the wider Indian banking system.

While the bank's common equity tier-1 ratio improved to 8.7 percent by September after an equity fundraise in August, the planned $1.2 billion equity infusion will improve Yes Bank's capital base by 270 basis points to 11.4 percent and help absorb losses, Moody's said.

The rating agency, however, said there are significant execution risks around the timing, price and regulatory approvals required and an inability to raise the planned equity capital will negatively impact Yes Bank's credit profile and ratings.

Watch | Reasons behind Moody placing Yes Bank under ratings review.

Moody's said the bank's fundraising ability and liquidity position is weak when compared with other private lenders. These aspects of its business could come under pressure if the bank's unable to strengthen its solvency in the next
few quarters, it said.

Moody's said it's unlikely to upgrade Yes Bank's credit rating over the next 12-18 months. The rating agency, however, said it could change the outlook for the bank to ‘stable' if the current asset-quality profile is maintained, adequate provisions against stressed assets are made and if the equity capital raise is executed so that the bank's loss-absorbing buffers are strengthened.