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Last Updated : Jun 11, 2019 03:54 PM IST | Source: Moneycontrol.com

Moody’s places Yes Bank's ratings under review for downgrade

The review for downgrade takes into account its expectation that the ongoing liquidity pressures will negatively impact the credit profile of Yes Bank, given the bank's sizeable exposure to weaker companies in the sector

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Rating agency Moody's Investors Service has placed Yes Bank's foreign currency issuer rating of Ba1 under review for a potential downgrade. It has also placed the bank's long-term foreign and local currency bank deposit ratings of Ba1, foreign currency senior unsecured MTN programme rating of (P)Ba1, among other instruments under review.

It has affirmed the bank's short-term foreign and local currency bank deposit rating of NP.

The review for downgrade takes into account its expectation that the ongoing liquidity pressures will negatively impact the credit profile of Yes Bank, given the bank's sizeable exposure to weaker companies in the sector.

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At the end of March, the bank’s exposure to housing finance companies (HFC) and non-bank finance companies (NBFC) represented 6.4 percent of its total exposure. “Yes Bank had a seven percent 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,” it stated.

Going forward, Moody's expects significant pressure on the bank's asset quality and therefore profitability and capital position. “In April, the bank classified about Rs 10,000 crore of its exposures, representing 4.1 percent of its total loans under watch-list, which could translate into non-performing loans over the next 12 months. Nevertheless, the impact will be somewhat cushioned by the bank's proactive loan loss provisioning for anticipated stress,” it explained.

The review notice takes into account Yes Bank’s fund raising plans of $1 billion. But cautions that a failure to do so would result in the bank’s loss absorbing capacity and therefore financial profile coming under pressure.

The rating agency has said it could downgrade Yes Bank's ratings if: 1) There is a sustained deterioration in impaired loans or loan-loss reserves, or if the rate of new nonperforming loan formation is significantly higher than previously experienced; or 2) Capital ratios decline because of its inability to raise new capital, or both.

In related news, Lt Gen Mukesh Sabharwal has resigned as Non-Executive Independent Director, the bank said in an exchange filing. It added that Sabharwal wants to spend time on academic pursuits.

 

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First Published on Jun 11, 2019 03:27 pm
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