Moody’s Investors Service on Wednesday downgraded private lender Yes Bank’s foreign-currency issuer rating to ‘Ba3’ from ‘Ba1’, which sent the company’s stocks plunging nearly 7 per cent on the BSE.
Moody’s also downgraded the bank’s long term foreign and local currency bank deposit ratings to ‘Ba3’ from ‘Ba1’, the foreign currency senior unsecured Medium Term Note (MTN) program rating to ‘(P)Ba3’ from ‘(P)Ba1’, and Baseline Credit Assessment (BCA) and adjusted BCA to ‘b1’ from ‘ba2’.
The rating downgrade took into account the lower than expected amount of capital raised by the bank recently, and the risk that the substantial decline in the bank’s share price will challenge its ability to raise sufficient capital to maintain its rating at its previous level.
On August 14, Yes Bank raised Rs 19.3 billion in new capital via a qualified institutional placement (QIP). Moody’s said the QIP will moderately improve the bank’s reported common equity tier 1 (CET1) ratio as of June 30, 2019, to 8.6 per cent, from 8 per cent.
Moreover, Moody’s expects the bulk of Yes Bank’s operating profits to 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 Moody’s opinion, is becoming more challenging given the substantial decline in its share price.
Yes Bank’s asset quality deteriorated in the quarter ended June 2019, with its gross non-performing loan (NPL) ratio rising to 5.0 per cent from 3.2 per cent at the end of March 2019, Moody’s said.