Moody's Investors Service (Moody's) on Monday upgraded YES Bank's long-term foreign currency issuer and foreign currency senior unsecured MTN program ratings to 'Caa1' from 'Caa3' and (P) Caa1 from (P) Caa3, respectively. The rating agency has assigned positive outlook to the crisis-hit lender, taking into account the bailout of the bank's depositors and senior creditors under the reconstruction scheme. The rating action was also attributed to the confirmation by the Indian authorities and YES Bank that the moratorium on its depositors and creditors will be lifted on March 18, 2020.
Moody's has also changed the rating outlook to positive to reflect its expectation that the bank's financial fundamentals can improve due to the extraordinary support provided by the Indian authorities. Such extraordinary support will provide the bank sometime to rebuild its franchise, including its deposit base, it said.
Adding to it, Moody's has confirmed the bank's long-term foreign and local currency bank deposit ratings at Caa1. The global rating agency has also confirmed the private lender's long-term domestic and foreign currency Counterparty Risk Rating (CRR) and long-term Counterparty Risk Assessment (CR Assessment) at Caa1 and Caa1 (cr), respectively.
Besides, Moody's has affirmed Yes Bank's Baseline Credit Assessment (BCA) and adjusted BCA at ca.
Based on the reconstruction scheme, State Bank of India and six other Indian financial institutions have infused Rs 10,000 crore as new equity capital into YES Bank, the agency said. The rights, along with the terms and conditions of the bank's depositors and senior creditors, remained unaffected by the planned reconstruction, it added.
Separately, Rs 8,415 crore Additional Tier 1 (AT1) bonds have been written down in full to provide additional loss absorbing capital against the bank's losses.
Given the new capital raised and the AT1 securities writedown, Moody's expects YES Bank's solvency has improved and that the recovery rates for the banks' depositors and senior creditors will be very high, supporting the current credit ratings.
Despite the reconstruction scheme and new capital infusion, the bank's standalone viability is in question as the bank's deposit franchise has significantly deteriorated since quarter ended 30 September 2019. Between 1 October 2019 to 5 March 2020, YES Bank's deposits declined by 34 per cent and may weaken further once the moratorium is lifted. As a result, Moody's expects that the bank will continue to require liquidity assistance and forbearance from RBI immediately after the moratorium is lifted and until its operations stabilise.
As part of the reconstruction scheme, the Indian authorities and SBI have appointed new board members and a new MD and CEO to YES Bank. Moody's expects YES Bank's risk appetite will decrease and the bank's management framework will remain consistent and in line with its lower risk appetite.