Moody's cuts YES Bank long term foreign currency issuer rating; stock falls

Moody's said it could change the rating outlook to stable if the private lender adequately provides for its bad assets

Credit rating agency Moody’s on Wednesday downgraded private lender YES Bank’s long-term foreign currency issuer rating by a couple of notches, from Ba1 to Ba3. It cited lower-than-expected capital raised by the bank recently and its ability to raise further capital, considering the huge hit the bank has taken in its share price.

The rating downgrade resulted in YES Bank’s stock price going down further. The stock price tumbled more than 7 per cent to close at Rs 59.50.

Moody’s also downgraded YES Bank’s long-term foreign and local currency bank deposit ratings to Ba3, from Ba1, and maintained a negative outlook on the bank.

“The negative outlook primarily reflects the risk of further deterioration in the bank’s solvency, funding or liquidity, as the bank continues to work through the asset quality issues and rebuilds its loss-absorbing buffers,” said Moody’s.

The private lender recently raised Rs 1,930 crore via issuance of equity shares under the qualified institutional placement route. This moderately improved the banks common equity tier 1 capital ratio as of 30 June 2019 to 8.6 per cent, from 8 per cent, said Moody’s.

YES Bank is looking to further raise capital to the tune of $600 million.

Also, Moody’s expects the bulk of the bank’s operating profit to go into higher provisions for sour assets over the next 12-18 months and thus, not support internal capital generation. Hence, the bank has to rely increasingly on external capital to improve its loss-absorbing buffers, which will become increasingly difficult, given the substantial decline in its share price.

In the quarter ended June 2019, YES Bank’s gross non-performing assets (NPAs) stood at 5.01 per cent, against 1.31 per cent in the first quarter of 2018-19. In the March quarter, gross NPAs of the bank stood at 3.2 per cent.

About Rs 10,000 crore of loans, or 4 per cent of YES Bank’s total loans, remain on a watch list, meaning the bank expects the quantum of loans to translate into NPAs in the next two-three quarters.

Moody’s, however, said it could change the rating outlook to stable if the private lender adequately provides for its bad assets and further raises capital to strengthen its loss-absorbing buffers.