Credit rating agency Moody’s has said YES Bank might experience elevated operational and credit risks from the process of becoming a more “visible” bank, with a network 750 branches by 2015, up from 400 in September 2012.
It will take time to fully stabilise a larger business franchise and start reaping economies of scale benefits. Moody’s has assigned a financial strength rating of “D+” to YES Bank. The rating outlook is stable.
Besides a rapidly growing franchise, the rating also factors in strong financial performance and a high level of loan growth. The agency, however, warned that high credit growth carries risks, which would become apparent over time during adverse economic conditions.
It has a record of strong profitability and good risk management. It has better-than-industry asset quality. Its non-performing loans stood at 0.24 per cent of gross loans at the end of September, up from 0.20 per cent a year ago.
Moody’s said the funding profile of the Mumbai-based private sector bank is weighted in favour of relationships and wholesale deposits. The risks associated with such a lending profile are partly mitigated by the short-term loan book and sizable, liquid government securities portfolio.
The bank lags in terms of low-cost current and savings account deposits. The share of Casa in total deposits is 17 per cent, compared to 35 per cent for the sector. It has a strategic plan to grow the share of Casa to 30 per cent over time.
Moody’s said YES Bank’s capital adequacy was comfortable for its rating. However, the capital would consumed quickly due to rapid expansion. Its overall capital adequacy ratio (CAR) was 17.51 per cent with (Tier-I CAR at 9.5 per cent) at the end of September.
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The bank has an established record and capability to raise capital from the market. But, conditions in the capital markets are expected to be more challenging, given the Euro zone crisis, Moody's said.
YES Bank’s plan for 2015 envisages having 3,000 ATMs (up from 694 units now), doubling the headcount to 12,000 from 6,307 now and a loan book of Rs 1,00,000 crore.