Moratorium on YES Bank could impact most corporates briefly: India-Ratings

The moratorium on Yes Bank could have a transitory impact on most corporates exposed to the bank, and delays in resuming normal services may impact the near-term liquidity of some of its customers, rating agency Ind-Ra said.

"India Ratings and Research (Ind-Ra) has carried out a first-cut assessment of the impact of the recently imposed moratorium on Yes Bank's...withdrawals till April 3, 2020. The disruption could be transitory for most corporates exposed to the bank, given the administrator's statement of resuming the full operational status by next week," the rating agency said.

However, delays in resuming normal services could impact the near-term liquidity of some of the bank's customers.

Also, corporate groups with a large dependency on the bank could face a longer period of disruption.

These disruptions could stem from their usage of Yes Bank as a lender for facilities such as cash credit, letters of credit, bank guarantees and other working capital facilities as well as a term debt provider.

The moratorium is also likely to impact the liquidity cushion available with many corporates in form of deposits and investments parked with Yes Bank or available unutilised lines.

Also, issuers with Yes Bank as a service provider could also see severe impact on their day-to-day operations.

These are the issuers where Yes bank manages their trust and retention accounts and debt service reserve accounts, is counter party for securitisation transactions or acts as a collection agent, among other services.

There could be a potential second-degree impact through unavailability of transaction channels such as point of sale, wallets and clearing facilities where Yes Bank is a third party. Similarly, for companies where the key supplier or key customer banks with Yes Bank, there could be a cascading impact.

Ind-Ra believes that the impact of the moratorium needs to be assessed on a case-by-case basis. Companies sitting on a weak liquidity buffer along with large dependence on Yes Bank for fund-based working capital lines are likely to face near-term liquidity challenges.

Ind-Ra further said it expects large non-banking financial institutions to generally have a well-diversified funding mix and limited reliance on Yes Bank on their liability side. Also, most of these do not have any material deposits with the bank.

The impact on infrastructure projects is contingent on the level of involvement of Yes Bank in the daily operations.

Ind-Ra expects a higher risk in cases where the bank is closely linked and is the escrow banker (notwithstanding the number of banks in the consortium).