Maintaining 'Rating Watch Negative (RWN)' on Yes Bank, India Ratings on Wednesday said the lender continues to remain in discussions with potential investors but raising sizeable capital in the near-term could be challenging. RWN indicates that the rating will be either affirmed or downgraded.
India Ratings and Research (Ind-Ra) said it continues to await developments on Yes Bank's equity raising, which in the rating agency's opinion is critical for providing sufficient cushion to the possible credit cost impact from the stressed asset pool on regulatory capital requirement in the short- and medium-term.
It has maintained RWN on the Basel III tier-2 bonds of Rs 11,000 crore, additional Basel tier-1 bonds of Rs 11,100 crore and infrastructure bonds of Rs 3,580 crore.
The agency has withdrawn the bank's short-term rating since there is no outstanding against the same.
"Although the liquidity position of the bank seemed adequate at end-September 2019 (liquidity coverage ratio of 114 per cent), Ind-Ra believes that in the absence of any swift capital raise, the bank's ability to manage its asset and liability maturities could get tested further.
"The bank continues to remain in discussions with various potential investors. However, Ind-Ra believes raising sizeable capital in the near term could be challenging and could require various regulatory and other approvals," it added.
Ind-Ra would be reviewing the rating on the bank again in February.
The key rating drivers included delays in capital raising and rapid credit migration over the last few quarters in some of the bank's corporate exposure spread over multiple sectors.
The bank's liquidity coverage ratio was 114 per cent at end-September as against the regulatory requirement of 100 per cent.
It also said that bank's business model could evolve and may settle at lower non-interest income levels.
Yes Bank had initially planned to raise capital of over USD 1.2 billion in the current fiscal, but its board has rejected the binding term sheets of USD 1.2 billion offered by Canadian investor SPGP Group/Erwin Singh Braich.
Also, the decision to consider the binding term sheet of USD 500 million by Citax Investment Group is yet to be finalised by the board.
"Furthermore, the various approvals that the bank and/or the investors may require could extend the timeline of the proposed equity infusion," Ind-Ra said.
Mumbai-headquartered Yes Bank is a new generation private bank incorporated in 2004. The bank's asset size stood at Rs 3,71,160 crore at end-June 2019, with a net profit of Rs 1,720 crore in FY19.