ICRA Joins Moody’s In Downgrading Yes Bank On Corporate Governance Concerns
A man stands in front of an advertisement for Yes Bank Ltd. in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

ICRA Joins Moody’s In Downgrading Yes Bank On Corporate Governance Concerns

After Moody’s Investors Service downgraded Yes Bank Ltd. yesterday, credit rating agency ICRA has followed suit citing similar corporate governance concerns raised by the series of resignations of its independent directors.

In a statement today, ICRA said it cut the rating of Yes Bank's Rs 10,900 crore Basel III compliant bond to AA from AA+. A similar cut was made for the Rs 2,530.6 crore Basel II complaint bond, and the infrastructure bond programme.

ICRA said the series of resignations from the bank’s board raises concerns on corporate governance. “ICRA had earlier highlighted that these developments will adversely impact Yes Bank’s ability to raise capital, which otherwise were always factored in as one of the key credit strengths,” the statement said.

The rating agency will consider monitoring the bank's progress on finding a new managing director and chief executive officer, the outcome of a risk supervision audit by the Reserve Bank of India and capital raising plans. “The rating may be downgraded in case of any adverse developments on the above issues and the outcome of risk-based supervision exercise of RBI for FY2018 results, that may have any material adverse impact on asset quality parameters of the bank.”

However, ICRA said that the bank’s deposit base liquidity profile remains stable. It said that the ratings continue to factor in Yes Bank’s “robust operating performance" and its ability to maintain "comfortable asset quality”.

Moody’s Downgrade

Yesterday, Moody’s Investors Service downgraded the ratings assigned to Yes Bank Ltd., citing corporate governance concerns and implications of the upcoming management transition on growth strategy of the bank.

The rating agency has pegged down both the foreign currency and local currency ratings for the lender. Yes Bank’s foreign currency issuer rating has been cut to Ba1 from Baa3. Its baseline credit assessment has been cut to Ba2 from Ba1.

Moody’s has also maintained a negative outlook on that bank’s ratings, suggesting an elevated probability of another rating downgrade.

The rating action considers the resignation of various members of the bank’s Board of Directors -- which, when seen in conjunction with the Reserve Bank of India’s directive in September 2018 to restrict the term of the bank’s MD and CEO as well as founder, Rana Kapoor, till Jan. 31, 2019 -- have raised Moody’s concerns over corporate governance.
Moody’s Investors Service

The bank has seen resignations from three directors in quick succession, including Chairman Ashok Chawla who stepped down citing shortage of time. Another director R. Chandrasekhar stepped down saying that he was “unhappy” with certain developments, without specifying further. OP Bhatt, who was part of the search committee for a new chief executive officer also stepped down citing conflict of interest.

The bank is currently in the midst of a management transition with founder chief executive Rana Kapoor set to step down by end of January. Kapoor’s exit came after the Reserve Bank of India refused to grant him another three year term. The bank is yet to name a successor. A long standing dispute between the two promoter families of the bank has complicated the transition process.

According to Moody’s, while the bank’s credit fundamentals are stable, the developments surrounding the management transition could impact the bank’s ability to raise capital and hit growth.

In Moody’s opinion, although the bank’s reported credit fundamentals remain stable, the developments surrounding the transition in leadership as well as the governance issues are credit negative because they complicate management’s effective implementation of the bank’s long-term strategy. Furthermore, these developments could constrain the bank’s ability to raise new capital.
Moody’s Investors Service

Although Yes Bank's capitalisation is adequate, the bank would need to raise capital from the market to continue to grow its balance sheet more rapidly than the Indian banking system, Moody’s added.

Shares of Yes Bank fell sharply after the Moody’s downgrade.

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