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Rating agency Moody’s on Monday said YES Bank’s baseline credit assessment of “Ba1” reflected potential weaknesses in funding and liquidity profile. The private sector lender had maintained an adequate loans-to-customer deposit ratio of 95 per cent at the end of March 2016. But higher reliance on corporate deposits relative to its peers created risks in volatile markets.
The rating for the bank reflected its sound asset quality, consistent profitability, and small but rapidly growing franchise when compared with its Indian banking sector peers, Moody’s said in its credit opinion update.
The bank's level of low-cost deposits — current account and savings account (Casa) deposits — remained below the domestic peer average. But it has been building its deposit base as well as increasing its branch network.
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Casa ratio had improved to 28 per cent in FY16 from 15 per cent in FY12. (The CASA ratio indicates how much of a bank’s total deposits are in current and savings accounts. A higher ratio means a larger portion of a bank’s total deposits are in current and savings accounts. For a bank, this is favourable as the institution is getting money at low cost. Therefore, the CASA ratio is a reflection of a bank’s profitability or likelihood of generating profit as it is an indicator of the expense to raise funds.)
As the bank had expanded its retail presence, it could encounter operating challenges, Moody’s said. At the end of March 2016, the bank’s network consisted of 860 branches and 1,609 ATMs.
Referring to its expansion of its loan book, Moody’s said YES Bank had increased its loan book at a compound annual growth rate of 27 per cent for the five years (from FY12 to FY16). Even so, it had maintained one of the lowest non-performing loans (NPL) ratio among the Indian banks rated by Moody’s.
Despite a greater dominance of corporate loans (about 65 per cent of the loan book), its asset quality has remained fairly stable over the past years. It was only in the recent quarters, the bank had seen some slippages — both on the NPL and restructured loans front.
The gross NPL ratio rose to 0.76 per cent at the end of March 2016, compared with 0.41 per cent a year ago; standard restructured loans ratio rose to 0.53 per cent at the end of March 2016, compared with 0.50 per cent a year ago, it said.
In addition, the bank had maintained a strong provisioning buffer. Specific provisions were at 62 per cent of gross NPLs at the end of March 2016. This was partly the result of the banks’ strong pre-provision income (PPI). For the financial year ended March 2016, the bank’s PPI as a proportion of average risk-weighted assets was high, at 3.2 per cent. The bank's reported tier-I ratio remained stable at 10.7 per cent.
