The rating agency also upgraded Yes Bank's baseline credit assessment (BCA) and adjusted BCA to caa2 from ca.
Moody’s Investors Service on Monday said it has upgraded several of Yes Bank’s debt instruments to B3 from Caa1, following the close of the lender’s Rs 15,000-crore equity fund-raise. The rating agency also upgraded Yes Bank’s baseline credit assessment (BCA) and adjusted BCA to caa2 from ca. The outlook on Yes Bank’s ratings is changed to stable from positive, Moody’s said in a release.
“Yes Bank’s successful equity capital raise of Rs 150 billion (about $2 billion) has bolstered its solvency and is the main driver of the ratings upgrade. The successful equity raising showcases Yes Bank’s regained access to external market funds, which is a result of its improving financial strength and will support depositor confidence,” Moody’s said in its ratings rationale.
The bank’s B3 issuer rating is two notches above the bank’s caa2 BCA, reflecting the rating agency’s expectation of a high level of support from the government. Following the capital-raise, the bank’s common equity tier-I (CET-I) ratio will more than double to 13.4% from 6.6%, based on the bank’s capital position at the end of June 2020, bringing its capitalisation largely in line with its private sector peers.
“The significantly improved solvency ratio strengthens the bank’s resilience to potential asset quality risks resulting from the ongoing impact of the economic slowdown and coronavirus-related disruptions on India’s economy,” Moody’s said, adding that Yes Bank’s funding and liquidity have moderately improved in the second quarter of 2020, although they are still weaker than a year ago. Deposits, including current, savings and term deposits, increased 11% during March and June 2020, but remain 48% less than the same period last year. The deposit growth was largely driven by current account, corporate term deposits and certificate of deposits.
Despite the improvement in its deposit base, Moody’s expects that it will be challenging for Yes Bank to restore its low-cost current and savings account (CASA) deposits to pre-March 2020 rescue levels. “Even prior to its rescue, Yes Bank’s low CASA ratio was a weakness relative to other rated Indian private sector banks,” Moody’s said. The bank’s liquidity coverage ratio (LCR) has trebled to 114% as of June 30 from 40% as on March 31, supported in large part by the Reserve Bank of India (RBI).
However, Yes Bank continues to face the risk of a further deterioration in asset quality in light of the ongoing economic disruption caused by the coronavirus outbreak, Moody’s said.
Moody’s expects the bank to remain profitable over the next 12-18 months, but that will not be enough to support a significant internal capital generation. “Moody’s could downgrade the bank’s ratings and BCA if: (i) its capital deteriorates materially because of assetstrain and/or (ii) the bank’s funding and liquidity deteriorate and the bank continues to remain dependent on liquidity support from the regulator for a period beyond the next 12-18 months,” the release said.