Moody's warns Yes Bank of rating downgrade

Global ratings agency Moody's on November 6 placed private sector lender Yes Bank's ratings under review for downgrade, further confounding the pains for the lender that has been dogged by many an issue since the past one year.

The Ba3 rating of the bank can be downgraded because of the weak September quarter earnings and the bank managing to get only a commitment for $1.2 billion in funding recently, the agency said.

Moody's also sees the bank's total dud asset to top 12 percent this year basing on bank's own assessment of over 40 percent of its Rs 30,000-crore of exposure to lower rated entities turning sour before March.

The bank has been passing through a tumultous period ever since the Reserve Bank asked the promoter-chief executive Rana Kapoor to leave the bank by January 31, 2019 in August last year over concerns on governance and loan practices, and his successor Ravneet Gill disclosing large underreported stressed assets.

Under Gill, the bank reported its maiden loss in the March quarter and the strain on asset quality continues with it reporting a rise in the gross non-performing assets ratio to over 7.6 in the September quarter.

"The bank's weakening financial position can be somewhat offset by the planned capital raising. Nevertheless, there are significant execution risks around the timing, price and regulatory approvals required," the agency noted and warned that any inability to raise the fund will negatively impact the credit profile and ratings.

A rating downgrade is possible if it were to fail to raise the capital or if the quantum of dud loans rose or because of a deterioration in the liquidity position, it said.

Noting that the bank also has a Rs 31,000 crore low rated book, wherein the its management expects a slippage of up to 40 percent, the agency estimated the actual stressed pool to be at 12 percent of the book.

The increased pace of corporate downgrades from its portfolio and the ongoing liquidity pressures faced by shadow banks only aggravate the troubles, it said, adding "the bank's loss absorbing buffers against stressed assets is weak".

Moody's also ruled out an upgrade in the next 12-18 months saying the outlook can be changed to stable if the asset quality is stable and the capital raise happens.

The Yes Bank scrip closed 0.59 percent up at Rs 68.75 on the BSE as against a 0.55 percent gain on the benchmark.