Global rating agency Moody's Investors Service on Wednesday downgraded YES Bank's long-term foreign-currency issuer rating to Ba3 from Ba1 and maintained 'negative' outlook with concerns over lower than expected amount of capital raised by the bank.
"Moody's has 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," the credit rating agency said in a latest research report.
The negative outlook 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, the credit rating agency said.
On August 14, 2019, Yes Bank raised Rs 1,930 crore in new capital through a qualified institutional placement (QIP).
Earlier this month, Moody's had reiterated its decision to keep YES Bank's ratings "under review for downgrade" for the second time in under two months, citing the worsening asset quality and higher exposure to shadow banks.
In a note on Wednesday, the rating agency said that "today's rating action concludes the review for downgrade initiated on 11 June 2019".
"The downgrade of Yes Bank's ratings takes 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 the rating at its previous level," Moody's said in its report.
The development comes days ahead of its board meeting to consider raising funds by way of issuance of equity shares. As per media reports, the management of the company is seeking permission from the board for raising Rs 9,000 crore.
"The Board of Directors of Yes Bank will be meeting on August 30 to consider and approve raising of funds by way of issuance of equity shares including but not limited through preferential issue and/ or Qualified Institutions Placement (QIP)/ Global Depository Receipts (GDRs)/ American Depository Receipts (ADRs)/ Foreign Currency Convertible Bonds (FCCBs)/ fully or partially convertible debentures/ convertible Preference shares/ any other financial instruments or securities convertible into Equity Shares or any other instrument on private placement basis," YES Bank said in a regulatory filing on Tuesday.
Furthermore, Moody's expects the bulk of YES Bank'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 Moody's opinion is becoming more challenging given the substantial decline in its share price," it added.
Yes Bank's asset quality deteriorated during the June quarter, with its gross nonperforming loan (NPL) ratio rising to 5.0% from 3.2% at the end of March 2019. As of June 30, 2019, about Rs 10,000 crore of loans -- or about 4% 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.
Weighed down by the development, YES Bank share price fell as much as 9.72% to Rs 58.05 apiece in intra-day trade on Wednesday.
Edited by Chitranjan Kumar
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