Moody’s downgrades YES Bank ratings, changes outlook to negative

Source: economictimes.indiatimes.com

Mumbai: Global ratings agency Moody’s Investors Service downgraded private sector lender Yes BankNSE -3.53 % deeper in to junk on Wednesday, raising concerns over lower than expected capital raising and its ability to raise further funds. The ratings of the private lender’s long term foreign and local currency bank deposit ratings was downgraded to Ba3 from Ba1, with negative outlook.

The shares of the lender slipped by over 7% to end at Rs 59.5. The stock has seen a fall of over 68% this year and a market cap decline of a whopping Rs 26,000 crore. 

“The downgrade of Yes Bank’s ratings takes into account, lower than expected amount of capital raised by the bank and the risk that the substantial decline in the bank’s share price will challenge its ability to raise sufficient capital to maintain the rating at its previous level,” Moody’s said in a statement. 

The bank also announced that its board of directors will meet on August 30 to approve a proposal to raise more funds. It had recently raised Rs 1,930 crore through a qualified institutional placement. Analysts estimate that while the latest capital raising will improve its capital ratios by 60 bps, it would need further growth capital of up to Rs 4000 crore to prop up credit growth. 

Yes Bank’s dollar bonds due 2023 slumped as much as 3.2 cents on the dollar to 86.4 cents after Moody’s cut its outlook, the biggest decline in 9 months, data with Bloomberg showed.

Moody’s expects the bulk of Yes Bank’s operating profits will get consumed by loan loss provisions over the next 12-18 months. With no support from internal capital generation the bank will be dependent on external capital raising to improve its loss-absorbing buffers, which in Moody’s opinion is becoming more challenging given the substantial decline in its share price.

Yes Bank’s asset quality deteriorated in the quarter ended June 2019, with its gross non-performing loan ratios rising to 5% from 3.2% at the end of March 2019. About Rs 7,500 crore of bond investments or 10% of its total investment holdings have experienced rating downgrades in the 
past quarters.

As of June 2019, the bank’s loan loss coverage against potential stressed loans, bad loans and watchlist loans registered about 27%, which is very weak compared to the loan given default 
experience of Indian banks. 

“Although the bank’s funding and liquidity profile has remained broadly stable, it compares weakly to other rated private sector peers in India,” Moody’s noted. “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.” 

The rating agency also said that given the negative outlook, an upgrade is unlikely over the next 12-18 months.