Moody’s places Yes Bank’s ratings under review for downgrade
Live Mint
June 11, 2019
Moody’s Investors Service on Tuesday placed Yes Bank Ltd’s Ba1 foreign currency issuer rating under review for a downgrade.
The American credit rating agency said the review takes into account the ongoing liquidity pressures on Indian finance companies, which may negatively impact the credit profile of Yes Bank, given its sizeable exposure to weak companies in the sector.
“In addition, Yes Bank had 7% direct exposure to the commercial and residential real estate sector as of the same date, which is also under pressure, because liquidity conditions have worsened for the real estate sector, just like with the HFCs and NBFCs," said Moody’s.
In April, the bank had classified about ₹10,000 crore of its exposures, representing 4.1% of its total loans, under its stressed assets watch list. The rating agency says this could translate into non-performing loans over the next 12 months.
“Taking into account the bank’s own disclosure of the stressed book, as well as Moody’s expectation of stress in the Indian housing finance company (HFC), non-banking financial company (NBFC) and real estate sectors, Moody’s expects significant pressure on the bank’s asset quality and therefore profitability and capital position," it said.
Nevertheless, the impact will be somewhat cushioned by the bank’s proactive loan loss provisioning for anticipated stress, it added.
During the 2018-19, the bank made loan loss provisions of about 20% for the loans on the watch list.
“The bank’s weak performance in fiscal 2019 led to its capital, as measured by the common equity tier 1 ratio, falling to 8.4% from 9.7% in fiscal 2018. The bank’s board has approved up to $1 billion equity capital raise. If Yes Bank cannot raise the capital, its loss-absorbing capacity and therefore financial profile will be under pressure," said Moody’s.
In its rating action, Moody’s has maintained that Yes Bank’s standalone credit profile at ba2 is one notch lower than its financial profile because of the weightage given to its corporate behaviour.
“The negative adjustment takes into account the management’s aggressive strategy, which has translated into rapid loan growth in the past 4-5 years and large concentrations to some of the Indian conglomerate groups. The adjustment also takes into account the Reserve Bank of India’s (RBI) identification of several lapses and regulatory breaches in the various areas of the bank’s functioning," it said. The credit rating agency said that given the recent changes at the bank, its corporate behaviour can gradually improve.
However, Moody’s continues to make the negative adjustment to highlight the fact that the changes are fairly new and expects that the impact of the previous actions will continue to negatively impact the financial performance of the bank.
The recent changes at the bank include the appointments of an external candidate, Ravneet Gill as managing director and chief executive officer and that of retired RBI deputy governor R. Gandhi as an additional director on the bank’s board.
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