Equity raise strengthens Yes Bank’s capital, reduces risks for creditors: Moody’s

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Published: July 22, 2020 3:10 AM

“The successful equity raise reflects Yes Bank's regained access to external market funds, which in turn shows its improving financial strength and will help support depositor confidence,” the rating agency said.

“The successful equity raise reflects Yes Bank's regained access to external market funds, which in turn shows its improving financial strength and will help support depositor confidence,” the rating agency said.On March 5, the RBI had placed Yes Bank under a moratorium because of weakening solvency and liquidity.

Ratings firm Moody’s on Tuesday said the completion of the Rs 15,000-crore follow on public offer (FPO) by Yes Bank would serve to strengthen the lender’s capital base and reduce risks for its creditors. The capital raise is credit positive because it strengthens the bank’s capitalisation and loss-absorbing buffers and will reduce default risk for its creditors, Moody’s added.

“The successful equity raise reflects Yes Bank’s regained access to external market funds, which in turn shows its improving financial strength and will help support depositor confidence,” the rating agency said.

In June, the RBI prohibited Yes Bank from paying coupons on its Tier-II bonds because it failed to meet regulatory capital requirements. The bank reported a capital adequacy ratio (CAR) of 8.5% as of March 31, 2020, below the minimum requirement of 9%. With the fresh capital raise, Moody’s expects the bank to be able to service the coupon on its Tier-II debt because its CAR, pro forma for the new capital raise, of 19% will be well above the regulatory capital requirements, thereby reducing risks to the holders of its Tier-II debt.

On March 5, the RBI had placed Yes Bank under a moratorium because of weakening solvency and liquidity. Following the moratorium, the RBI and the government of India completed a rescue plan that included a capital infusion by a consortium of public and private sector banks and liquidity support from the central bank. Also, Yes Bank’s Basel III-compliant additional Tier-I (AT-I) securities, amounting to `8,415 crore, were written down in full. On March 18, the RBI lifted the moratorium on Yes Bank.

“Based on the bank’s capital position as of the end of March 2020, we estimate that pro forma the new capital from the equity raise will nearly double the bank’s Common Equity Tier 1 (CET1) ratio to 12.9% from 6.3% as of the same date,” Moody’s said, adding that the capital raise brings Yes Bank’s capitalisation closer to its private-sector peers and will strengthen the bank’s resilience to potential asset quality stress because of the coronavirus-related disruptions to India’s economy.

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