Moody’s Downgrades Yes Bank Ratings, Outlook Retained At Negative
Moody’s Investors Service on Thursday downgraded Yes Bank Ltd.’s long-term foreign currency issuer rating to ‘B2’ from ‘Ba3’, bringing it down by two notches.
The ratings agency has also downgraded the bank’s long-term foreign and local currency bank deposit ratings to ‘B2’ from ‘Ba3’, foreign currency senior unsecured medium-term note program rating to ‘(P)B2’ from ‘(P)Ba3’, and baseline credit assessment and adjusted BCA to ‘b3’ from ‘b1’, it said in a statement.
The outlook for the bank has been retained at negative, Moody’s said. It had put the bank’s rating on review last month.
The downgrade “takes into account Moody’s expectation that the bank’s pool of potential stressed assets and low loss-absorbing buffers against those assets will add pressure to its funding and liquidity, creating additional risks to its standalone credit profile or BCA”, it said.
The ratings agency also said that Yes Bank’s common equity tier-1, which stood at 8.7 percent as on Sept. 30, will come under considerable pressure owing to these bad loan pressures, unless it is able to raise capital within a short span of time.
While the private sector lender has received interest from foreign and domestic investors for a $2-billion fundraise, Moody’s said that considerable execution risks exist in the form of timing, price and regulatory approvals.
"Moody’s expects that the Indian authorities will strive to maintain systemic stability and help prevent any weakness in the bank’s standalone credit profile from significantly affecting depositors and creditors,” the ratings agency said. “The support assumption also takes into account the bank’s modest, but increased franchise and relative importance to India’s banking system."
In its ratings rationale, Moody’s also took into account several lapses and regulatory breaches which the Reserve Bank of India found in the bank’s functioning. It also took note of the asset quality divergence, which the regulator found in the bank’s results for the financial year ended March 2019. This indicated higher non-performing assets and lower profitability for the bank, Moody’s said.
The RBI had found that Yes Bank had not reported loans worth Rs 3,277 crore as NPA in the last financial year. This was the third such instance of the regulator finding an asset quality divergence in the bank’s asset quality disclosures.
While Moody’s is unlikely to upgrade Yes Bank’s rating for the next 12-18 months, it could consider changing the outlook to stable if the bank concludes a large capital raise, it said.