Yes Bank falls 8% after Moody's downgrades long term foreign currency issuer rating

Shares of Yes Bank lost 10 percent intraday on August 28 after Moody's downgraded lender's credit rating with a negative outlook, citing lower-than-expected capital raising.

The stock lost more than 84 percent of its value in the last one year due to corporate governance and asset quality concerns. It closed at Rs 59.50, down Rs 5, or 7.75 percent on the NSE.

Moody's Investors Service said it has downgraded bank's long-term foreign-currency issuer rating to Ba3 from Ba1.

The global rating agency also downgraded the bank's long term foreign and local currency bank deposit ratings to Ba3 from Ba1, foreign currency senior unsecured MTN program rating to (P)Ba3 from (P)Ba1, and Baseline Credit Assessment (BCA) and adjusted BCA to b1 from ba2.

Moody's said the downgrade of Yes Bank's ratings takes into account: (1) the lower than expected amount of capital raised by the bank recently; and (2) 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.

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, it added.

On August 14, 2019, Yes Bank raised Rs 1,930 crore in new capital via a qualified institutional placement (QIP).

Moody's said on a pro-forma basis, the QIP will moderately improve the bank's reported common equity tier 1 (CET1) ratio as of June 30, 2019, to 8.6 percent from 8 percent.

Furthermore, the rating agency expects the bulk of lender's operating profits will get consumed by loan loss provisions over the next 12-18 months, and thus not support internal capital generation.

"This will leave the bank dependent on external capital raising to improve its loss-absorbing buffers, which in our opinion is becoming more challenging given the substantial decline in its share price," it said.

Yes Bank's asset quality deteriorated in the quarter ended June 2019, with its gross nonperforming loan (NPL) ratio rising to 5 percent from 3.2 percent at the end of March 2019.

As of the same date, about Rs 10,000 crore of loans -- or about 4 percent of Yes Bank's total loans -- remain on a watchlist, meaning the company expects these watchlist loans may translate into NPLs over the next 2-3 quarters, Moody's said.

On top of that, about Rs 7,500 crore of bond investments -- or 10 percent of its total investment holdings -- have experienced rating downgrades in the past quarters, it added.

The rating agency said although the bank's funding and liquidity profile has remained broadly stable, it compares weakly to other rated private sector peers in India.