Ind-Ra affirms Yes Bank long-term issuer rating at 'BBB'; outlook is stable

Rating reflects improving deposit profile, adequate capital levels to withstand stress on books

India Ratings has affirmed private lender Yes Bank's long term issuer rating at “BBB” reflecting adequate capital levels to withstand expected stress on book and improving deposit profile. The outlook is stable.

The bank's common equity tier-1 (CET-1) stood at 11.6 per cent at the end of Q1FY22 (peak in FY21 was 13.6 per cent). It carries deferred tax assets of Rs 6,400 crore, that have been reduced from the net worth to arrive at the CET-1.

As the assets against which provisions are made get written off or sold, the agency believes the deferred tax assets would get utilised and result in an increase in CET-1, rating agency said.

The bank is expected to benefit from its association with its single largest shareholder the State Bank of India. SBI has to maintain a minimum of 26 per cent holding in the bank till March 2023, based on Yes Bank’s reconstruction plan. Country's largest lender currently holds a 30 per cent stake in the bank.

Its recoveries could drive profitability of the bank in FY22. The lender posted a loss of Rs 3,400 crore in FY21, mainly on account of fresh slippages of Rs 12,000 crore. The bank has maintained provision cover of 67 per cent (excluding technical write-offs) on gross non-performing assets at the end of Q1FY22 and over 90 per cent provisions on non-performing investments.

In FY21, the bank witnessed upgradation and recoveries, including cash recoveries of Rs 5,000 crore. The lender has a target of Rs 5,000 crore of recoveries in FY22, out of which it recovered Rs 600 crore in 1QFY22, rating agency said.

The bank has disbursed over Rs 5,000 crore under the Emergency Credit Line Guarantee Scheme till Q1FY22. It does not have a material pipeline for the Emergency Credit Line Guarantee Scheme’s disbursements or restructuring post Q1FY22.

Yes Bank's deposit Profile is improving and deposits increased to Rs 1.63 trillion in 1QFY22. Its current account-savings accounts increased almost 50 per cent (year-on-year) in Q1FY22, while the retail term deposits rose by about 40 per cent.