(Bloomberg) -- The world's worst performing major bank in stock markets this year is also sliding in the bond market after a credit rating downgrade.
Yes Bank Ltd., one of India's largest private-sector banks, has been rocked by asset quality worries due to heavy exposure to weaker borrowers amid mounting credit market strains. Moody's Investors Service cut its rating on Yes Bank deeper into junk on Wednesday, citing concerns about its capital buffers and ability to raise funds.
Yes Bank is at the epicenter of rising stress in India's credit markets, where shock defaults last year by a major infrastructure lender have led to broader strains at other shadow banks. The Mumbai-based bank's exposure to junk-grade firms includes Dewan Housing Finance Corp. and parts of Anil Ambani's conglomerate — companies at the heart of the unfolding crisis.
Market Moves
- The lender's 2023 dollar bonds extended declines Thursday to 85.1 cents, the lowest since issuance last year. Read more about that here.
- The bank's shares fell 3.9% Thursday, bringing their plunge this year to 69%, the most among lenders across the world with a market capitalization of more than $1 billion.
Moody's Downgrade
- Moody's cut the rating to Ba3 from Ba1 with a negative outlook, citing the risk that “the substantial decline in the bank's share price will challenge its ability to raise sufficient capital to maintain the rating at its previous level."
- The rating assessor doesn't expect the bank to generate internal capital as its operating profit might get “consumed by loan loss provisions over the next 12-18 months.”
Key Background
- The bank has declared that about 100 billion rupees, or 4% of its loan book according to Moody's calculations, could slip into the bad-loan category.
- Its need for new capital was underlined in its June quarterly results, which showed its common equity Tier 1 ratio had slipped close to the regulatory minimum. Yes Bank raised 19.3 billion rupees ($268 million) of capital via institutional placements earlier this month.
- “Incremental borrowings for the bank might come at a higher cost,” said Anusha Raheja, analyst at LKP Shares & Securities Ltd.
- Yes Bank will consider another round of fund raising via equity
Read: World's Worst Bank Stocks Get No Relief From Gloom in India
--With assistance from Rahul Satija and Ronojoy Mazumdar.
To contact the reporters on this story: Suvashree Ghosh in Mumbai at sghosh186@bloomberg.net;Divya Patil in Mumbai at dpatil7@bloomberg.net
To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, ;Marcus Wright at mwright115@bloomberg.net, Arijit Ghosh
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