Yes Bank said that CRISIL Ratings has upgraded the rating on Tier-II bonds (under Basel III) and Infrastructure Bonds of the bank to 'CRISIL A-' from 'CRISIL BBB+' and has revised the outlook to 'positive' from 'stable'.
CRISIL Ratings has also upgraded the rating on the Rs 20,000 crore certificates of deposit (CD) of the bank to 'CRISIL A1+' from 'CRISIL A1'.
Offering the rating rationale, the credit rating agency said that the rating action reflects the expectation of continued improvement in the performance of the bank, including traction in deposits, better underlying asset quality with realignment of business model and risk management practices, uptick in profitability and strengthening of capital buffers with the proposed capital raise of Rs 8900 crore.
The steady improvement in the deposit base of the bank seen since the reconstruction scheme in March 2020 is expected to continue and hold the bank in a good stead.
While the CASA level may not see a sharp increase in the near term given the interest rate cycle and consequent potential shift to term deposits which carry higher rates, and well as the greater comfort of institutional depositors with the bank, the overall stability of deposits is expected to be sustained.
On the asset side, the bank has realigned its business model with a focus towards more granular lending, with the share of retail and small and medium enterprises (SME) increasing. Even within the corporate book, the bank is focussing on lower sized exposures that in the past and with a higher proportion of working capital loans, with term lending mainly to better rated corporates.
In each of its business segments, the bank has strengthened its risk management practices over the last two years.
The reported asset quality metrics are also expected to benefit from the proposed transaction with an asset reconstruction company (ARC), wherein the bank will sell the stressed exposures worth Rs 48,000 crore.
The bank has received a base bid of Rs 11,813 crore, which is 135% of the book value of the assets and the final winner will be decided based on the financial bids submitted by other ARCs, if any. The transaction is expected to be consummated by the third quarter of the current fiscal and is likely to result in a reduction in gross NPAs of about 1150 to 1200 bps from the current level of 13.45% as on 30 June 2022.
Profitability is on an improving trend with the bank reporting profits for past five consecutive quarters as against losses in fiscal 2021 and fiscal 2020. Additionally, the bank's capital position is adequate with the common equity tier I (CET1) ratio and overall capital adequacy ratio (CAR) of 11.9% and 17.5%, respectively, as on 30 June 2022.
"Nevertheless, the ability of the bank to continue to build a strong retail liabilities franchise and a stable and sound operating business model with strong compliance and governance framework over the medium term, needs to be demonstrated over the longer term.
Additionally, the impact of the shift in business model to focus on granular retail and micro, small and medium enterprises (MSME) segments and selective working capital loans in the corporate segment will need to be seen over a longer period. These will be key rating monitorables," CRISIL Ratings said in a statement.
Yes Bank is a private sector bank with total assets of Rs 3,18,475 crore, total gross advances of Rs 2,06,296 crore, and a network of 1,140 branches as on 30 June 2022.
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