ICRA Upgrades Yes Bank On Improved Financial Profile
Signage for Yes Bank is displayed at a branch in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

ICRA Upgrades Yes Bank On Improved Financial Profile

ICRA Ltd. has upgraded its ratings on securities issued by Yes Bank Ltd., months after the private lender’s financial position worsened and its board was superseded by the Reserve Bank of India, leading to a rescue effort.

The rating agency said on Sept. 11 that the upgrade factors in various positive developments on the bank’s financial profile.

Infrastructure bonds and Basel II compliant lower tier II bonds were raised to ‘BBB’ from ‘BB+’. Basel III compliant tier II bonds were upgraded to ‘BBB-’ from ‘BB’. Basel II compliant tier I bonds and upper tier II bonds were upgraded to ‘BB’ from a default rating previously.

“The rating upgrade factors in the sizeable capital raise of Rs 15,000 crore in July 2020, which has resulted in an improvement in the capital ratios of Yes Bank,” ICRA said in its statement.

This is the second such upgrade the private bank has seen since its follow-on public offer in July. On Aug. 3, Moody’s had raised Yes Bank’s long term issuer rating by a notch to B3 from Caa1.

Additionally, ICRA also considered the improvement in the bank’s liquidity position after the stability and subsequent increase in its deposit base. This, coupled with the recent capital raise, has helped Yes Bank fully repay the special liquidity facility extended to it by the Reserve Bank of India, ICRA said.

While addressing shareholders during an annual general meeting on Sept. 10, Yes Bank Chairman Sunil Mehta said the lender had managed to repay the entire Rs 50,000 crore it owed to the RBI under the special liquidity facility.

Yes Bank’s total deposits, as on June 30, rose 11.4% sequentially to Rs 1.17 lakh crore, while its CASA ratio stood at 25.8%. Current account deposits rose 26%, while savings account deposits fell 1%. Term deposits rose 13%, led by a 30% increase in certificates of deposits during the same period.

According to ICRA, the private lender’s corporate loan book could continue to see higher credit costs owing to stress from the Covid-19 outbreak. Despite having the flexibility to restructure loans, ICRA estimates slippages and credit costs will remain high in a stress scenario.

The bank’s portfolio of net non-performing assets, non-funded exposure turned non-performing and net non-performing investments stays high at 44% of its total loan book as on June 30, which could raise credit costs in the future.

Yes Bank’s ability to control slippages and resolve or recover its stressed assets could partly offset the incremental credit provisioning on fresh slippages and will remain a monitorable for ICRA.

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