No Material Impact Of Yes Bank Crisis On Shriram Transport Finance: S&P
The ongoing Yes Bank crisis will not have a material impact on Shriram Transport Finance Company Ltd. as the firm's exposure to the troubled private sector lender is currently less than 0.5 percent of its net worth.
Shriram Transport Finance has Rs 50 crore exposure to Yes Bank's hybrid securities in the form of upper Tier II bonds. The company had made this investment in 2010.
The Reserve Bank of India has placed Yes Bank under a moratorium and withdrawals have been capped at Rs 50,000 for one month. State Bank of India is likely to pick up 49 percent stake in the crisis-hit lender as part of a Rs 2,450-crore rescue plan.
"S&P Global Ratings believes Shriram Transport Finance's low exposure to Yes Bank's hybrid securities will shield its financial profile. Shriram Transport Finance does not hold any Additional Tier 1 capital instruments of the bank," the ratings firm said in a release. "Only AT1 instruments are currently envisaged to be permanently written down," it said.
Even if Shriram Transport Finance is required to make provision for 100 percent credit loss on the Rs 50 crore exposure, it will not materially affect its capitalisation given the exposure is currently less than 0.5 percent of its net worth, S&P Global Ratings said. "But we believe other finance companies holding Yes Bank's hybrid securities in their treasury investments could see credit losses.”
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The agency further said it continues to see risk of a potential deterioration in Shriram Transport Finance’s asset quality over the next few quarters. Slower economic growth and weaker economic activity in India could lower vehicle utilisation, affecting the cash flows of road transport operators.