Yes Bank Shares Drop 4% After Moody’s Places Ratings Under Review for Downgrade
Moody’s expect that the ongoing liquidity pressures will negatively impact the credit profile of Yes Bank, given its sizeable exposure to weaker companies in the sector.
Image for representation. (Photo Reuters)
Yes Bank shares dropped nearly 4% in intraday trade on Wednesday after the rating agency, Moody’s Investors Service placed the bank’s foreign currency issuer rating of Ba1 under review for a potential downgrade.
Moody’s affirmed Yes Bank’s short-term foreign and local currency bank deposit rating of NP.
It has also placed the bank's long-term foreign and local currency bank deposit ratings of Ba1 and foreign currency senior unsecured MTN programme rating of (P) Ba1, among other instruments under review.
Moody’s said it could downgrade Yes Bank’s ratings in two scenarios. One, if there is a sustained deterioration in impaired loans or loan-loss reserves, or if the rate of new non-performing loan formation is significantly higher than previously experienced; and two, if the capital ratios decline because of the bank’s inability to raise new capital.
The review for downgrade takes into account Moody’s expectation that the ongoing liquidity pressures will negatively impact the credit profile of Yes Bank, given its sizeable exposure to weaker companies in the sector.
At the end of March, Yes Bank’s exposure to housing finance companies (HFC) and non-bank finance companies (NBFC) represented 6.4% of its total exposure. “Yes Bank had a 7% direct exposure to the commercial and residential real estate sector as of the same date, which is also under pressure, because liquidity conditions have worsened for the
real estate sector, just like with the HFCs and NBFCs,” Moody’s stated.
Moody’s expects significant pressure on Yes Bank’s asset quality and, therefore, profitability and capital position in near future. “In April, the bank classified about Rs 10,000 crore of its exposures, representing 4.1% of its total loans under watch-list, which could translate into non-performing loans over the next 12 months. Nevertheless, the impact will be somewhat cushioned by the bank’s proactive loan loss provisioning for anticipated stress,” it explained.
The ratings review notice also takes into account Yes Bank’s fund raising plans of $1 billion. Moody’s warns that any failure in raising funds would result in the bank’s loss-absorbing capacity its financial profile may come under severe pressure.
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