Rating Agencies Downgrade Yes Bank
Pedestrians walk past a Yes Bank Ltd. branch in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Rating Agencies Downgrade Yes Bank


Continued uncertainties on capital raising resulted in two domestic rating agencies downgrading private sector lender Yes Bank Ltd. on Thursday.

The bank, which has had a tumultuous year since the Reserve Bank of India terminated the term of its co-founder chief executive Rana Kapoor, has not been able to make progress in its equity raising even after claiming that it has investors willing to pump in $3 billion.

India Ratings said its downgrade on the bank's long-term issuer rating to 'Ind A' from 'Ind A+', accompanied by a rating watch negative outlook on three instruments, is due to "inadequate progress" on both the quantum and pace of equity infusions.

The bank had last week said its board is favourably considering a $500 million funding offer from Citax Holdings, while a $1.2 billion offer from Erwin Singh Braich, a little-known Canadian investor of Indian descent, is still under negotiations.

The rating agency said the capital is essential for taking the credit cost hit coming its way because of an accelerated recognition of bad assets initiated under new chief executive Ravneet Gill.

"In the absence of improvements on the capital side, the ability of the bank to manage its asset and liability maturities might be tested further," the agency said, noting that is likely to face balance sheet expansion challenges in the short-to-medium term.

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The bank's low-rated assets will continue to slip into the non-performing assets category, and the need to set aside money for the same along with new slippages will constrain the profitability of the bank, which has shown reported losses in two of the three quarters in 2019.

The capital constraints had resulted in a 7 percent decline in the bank's loan book in the September quarter, and the prime reason cited by the management to expedite the infusion was to get into the business-as-usual mode.

After claiming $3 billion of investor interest, the bank had informed that it is actively considering $2 billion of capital raise and also named the investors.

"Clarity is awaited on the potential investors, quantum and the timelines. Furthermore, the various approvals that the bank and/or the investors may require could extend the timeline of the proposed equity infusion," it said.

The agency appreciated the bank's efforts on the liability management.

Its peer ICRA also downgraded the bank's rating on various instruments and kept the outlook at negative for the same reasons.

The agency said it will continue to monitor the capital raising, liquidity/funding profile and asset quality position of the bank, and warned that a continued weakening on the parameters will remain negative rating triggers.

Despite the negative news on the rating front, Yes Bank's shares gained 6.74 percent to close at Rs 49.90 apiece on the BSE, against a rise of 0.28 percent on the benchmark.

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