Equity raising beefs up Yes Bank’s capital buffers, lowers creditors’ risks: Moody’s

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Published: July 21, 2020 7:40 PM

Yes Bank had reported a whopping Rs 16,418 crore net loss for FY20 as its asset quality worsened, compared to a net profit of Rs 1,720.3 crore in FY19.

Yes Bank had reported a whopping Rs 16,418 crore net loss for FY20 as its asset quality worsened, compared to a net profit of Rs 1,720.3 crore in FY19.

The Rs 15,000-crore equity capital raising by Yes Bank is credit positive for the lender as it strengthens the core capital and loss-absorbing buffers, besides reducing default risks for creditors, a report by global ratings agency Moody’s said on Tuesday.

Yes Bank was near bankrupt in March and was rescued by a Reserve Bank-led bailout plan under which SBI picked up 49 per cent equity in the once-storied private sector lender.  On July 17, it had raised Rs 15,000 crore in equity capital.  “Successful equity raising reflects Yes Bank’s regained access to external market funds, which in turn shows its improving financial strength and will help support depositor confidence,” Moody’s said in its note.

The Reserve Bank had placed Yes Bank under a moratorium due to its weakening solvency and liquidity. Following the moratorium, RBI also wrote down Rs 8,415 crore of its Basel III-compliant additional tier 1 securities. On March 18, the RBI lifted the moratorium well ahead of time.

Along with SBI, leading private sector lenders as well as LIC infused capital into the bank co-founded by Rana Kapoor, who is now in jail for alleged money laundering and financial fraud.  “Based on Yes Bank’s capital position as of end March, we estimate that pro forma the new capital will more than double its common equity tier 1 (CET1) ratio to 12.9 per cent from 6.3 per cent.

“This brings its capitalization closer to its private sector peers and strengthens its resilience to potential asset quality stress because of the coronavirus-related disruptions to the economy,” the agency pointed out.  Among the large private sector lenders, HDFC Bank has the highest equity capital ratio at over 16 per cent, followed by ICICI Bank and Axis Bank at a shade less than 15 per cent each, and IndusInd Bank at around 13 per cent, according to the agency.

In June, the RBI had 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 per cent as of March, which is below the minimum requirement of 9 per cent.

“However, with the new capital, we expect the bank to be able to service the coupon of its tier II debt because its CAR, pro forma for the new capital raise, of 19 per cent is well above the regulatory capital requirements, thereby reducing risks to the bondholders,” the report said.

Yes Bank had reported a whopping Rs 16,418 crore net loss for FY20 as its asset quality worsened, compared to a net profit of Rs 1,720.3 crore in FY19.

The bank saw higher slippages and shrinkage in loan book and the resultant worsening of asset quality under which it declared as much as 63 per cent of its corporate investments as non-performing investments.

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