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Ahead of fund raising plan, Moody's shocker for Yes Bank

The bank has been finding the going tough since August last year, after the RBI refused to clear the reappointment of co-promoter and chief executive Rana Kapoor on concerns around corporate governance and poor lending practices.

PTI PTI
Mumbai Published on: December 05, 2019 19:05 IST
Ahead of fund raising plan, Moody's shocker for Yes Bank
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Ahead of fund raising plan, Moody's shocker for Yes Bank

Global ratings agency Moody's on Wednesday downgraded the ratings on private sector lender Yes Bank with a negative outlook citing asset quality concerns and the shrinking capital buffers. The agency said the bank's claim to have received investor interest to the tune of USD 2 billion has "significant execution risks around the timing, price and regulatory approvals". The board of the bank is slated to meet on December 10 to finalise the fund raising plans. 

The bank has been finding the going tough since August last year, after the RBI refused to clear the reappointment of co-promoter and chief executive Rana Kapoor on concerns around corporate governance and poor lending practices.

His successor Ravneet Gill started off by recognising a huge pool of doubtful assets, which resulted in the bank reporting its maiden loss of over Rs 1,500 crore in the March quarter, and very low net income in the September quarter.

Moody's, which had warned of a downgrade on November 6, cut its long-term foreign currency issuer rating to 'B2' from 'Ba3' on Thursday with a negative outlook.

The agency said bank's pool of potential stressed assets and low loss absorbing buffers against those assets will add more pressure to its funding and liquidity, creating additional risks to the credit profile.

The common equity tier-I ratio, which stood at 8.7 percent in September forcing the bank to shrink its lending book by 7 percent, will come under "significant pressure" unless the bank gets fresh capital, it said.

However, the USD 2 billion capital raising plan announced last week has execution risks, the agency warned.

"Yes Bank's funding and liquidity compares weakly to other rated private sector peers, and can come under pressure if the bank failed to strengthen its solvency in the next few quarters," the agency said.

The downgrade also takes into account an assumption that government will strive to maintain systemic stability and help prevent any weakness in credit profile from significantly affecting depositors and creditors, the agency said.

Moody's also said third consecutive year of the bank being found to have under-reported NPAs has also been taken into account which is a negative on corporate behaviour risk.

The negative outlook is driven by risks of further deterioration in the bank's solvency, funding or liquidity, if the bank is unable to recapitalise itself within the next few quarters, the agency said. There is little chance of an upgrade in the rating given the negative outlook, the agency made it clear. 

However, scenarios like sustained deterioration in its impaired loans or loan-loss reserves, or if the rate of new NPA formation is significantly higher than previously experienced, decline in capital ratios because of losses or an inability to raise external capital, or deterioration in liquidity can lead to more downgrades, the agency warned.

Yes Bank scrip closed 1.51 percent down at Rs 62.10 on the BSE as against a correction of 0.17 percent in the benchmark.

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