Some of the bank’s corporate exposure spread over multiple sectors has witnessed rapid credit migration over the last few quarters, India Ratings said.
India Ratings on Wednesday downgraded Yes Bank to ‘A-‘ from ‘A’ while maintaining it on rating watch negative (RWN) citing the continued delay in the bank’s fund-raising programme.
In its rationale for the downgrade, the rating agency said, “The downgrade reflects the continued delay and inconclusive quantum of the anticipated equity infusion in Yes Bank. Ind-Ra believes this could adversely impact the bank’s franchise and potentially create challenges on asset and liability side.”
The agency observed that the bank has sizeable foreign currency liabilities and institutional deposits, and the required capital infusion is critical for providing sufficient cushion to the possible credit cost impact from the stressed asset pool on regulatory capital requirements in the short and medium term, as well as for the bank’s ability to continue to serve its customers adequately.
“Although the liquidity position of the bank seemed adequate at end-September 2019 (liquidity coverage ratio of 114%), Ind-Ra believes that in the absence of any swift capital raise, the bank’s ability to manage its asset and liability maturities could get tested further,” the agency said in the rationale.
Slower resolution in the lender’s stressed book was another factor behind the downgrade. Some of the bank’s corporate exposure spread over multiple sectors has witnessed rapid credit migration over the last few quarters, India Ratings said. In the agency’s opinion, attempts made by some of these borrowers towards resolutions could take longer than expected to yield results, and a large part of the credit overhang will persist.
“Ind-Ra continues to factor in the bank’s largely unseasoned loan book on account of high loan growth during FY17-FY18; repayments on some of its corporate exposures are contingent on liquidity events. GNPAs and loan accounts rated ‘BB’ and below are about 20% (end-September 2019) of its total book,” the agency said, adding that some of the exposures are on the bank’s investment book and could attract mark-downs. Some such exposures are marked down by over 20% and might be covered as provisions on investments.