Singapore, June 11, 2019 -- Moody's Investors Service has today placed Yes Bank Limited's foreign
currency issuer rating of Ba1 under review for downgrade.
Moody's has also placed the bank's long-term foreign and local
currency bank deposit ratings of Ba1, foreign currency senior unsecured
MTN program rating of (P)Ba1, and Baseline Credit Assessment (BCA)
and adjusted BCA of ba2 under review for downgrade.
At the same time, Moody's has placed the bank's Counterparty Risk
Assessment (CR Assessment) of Baa3(cr)/P-3(cr) and domestic and
foreign currency counterparty risk rating (CRR) of Baa3/P-3 under
review for downgrade.
In addition, Moody's has affirmed the bank's short-term
foreign and local currency bank deposit rating of NP.
For Yes Bank, IFSC Banking Unit Branch, Moody's has placed
the foreign currency senior unsecured MTN program rating of (P)Ba1 and
senior unsecured debt rating of Ba1 under review for downgrade.
Moody's has placed the IFSC Banking Unit Branch's CR Assessment of Baa3(cr)/
P-3(cr), and domestic and foreign currency CRR of Baa3/P-3
under review for downgrade.
RATINGS RATIONALE
The review for downgrade takes into account Moody's expectation
that the ongoing liquidity pressures on Indian finance companies will
negatively impact the credit profile of Yes Bank, given the bank's
sizeable exposure to weaker companies in the sector. At the end
of March 2019, Yes Bank's exposure to Indian housing finance
companies (HFC) and non-bank finance companies (NBFC) represented
6.4% of its total exposure. In addition, 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.
In April 2019, the bank classified about INR100 billion of its exposures,
representing 4.1% of its total loans under the watchlist,
that could translate into nonperforming loans over the next 12 months.
Taking into account the bank's own disclosure of the stressed book,
as well as Moody's expectation of stress in the Indian HFC,
NBFC and real estate sectors, Moody's expects significant
pressure on the bank's asset quality and therefore profitability
and capital position. Nevertheless, the impact will be somewhat
cushioned by the bank's proactive loan loss provisioning for anticipated
stress. During the fiscal year ended March 2019 (fiscal 2019),
the bank made loan loss provisions of about 20% for the loans on
the watchlist.
The bank's weak performance in fiscal 2019 led to its capital,
as measured by the common equity tier 1 ratio, falling to 8.4%
from 9.7% in fiscal 2018.
The bank's board has approved an up to USD1 billion equity capital
raise. If Yes Bank cannot raise the capital, its loss absorbing
capacity and therefore financial profile will be under pressure.
In this rating action, Moody's has maintained the negative
adjustment for corporate behavior for Yes Bank, which results in
a one notch adjustment to the bank's standalone credit profile (the
BCA) when compared to the bank's financial profile.
The negative adjustment takes into account management's aggressive
strategy, which has translated into rapid loan growth in the past
4-5 years and large concentrations to some of the Indian conglomerate
groups. The adjustment also takes into account the Reserve Bank
of India's (RBI) identification of several lapses and regulatory
breaches in the various areas of the bank's functioning.
In Moody's opinion, given the recent changes at the bank,
its corporate behavior can gradually improve. Nevertheless,
Moody's continues to make the negative adjustment to reflect the
fact that the changes are fairly new and our expectation that the impact
of the previous actions will continue to negatively impact the financial
performance of the bank.
The recent changes at the bank — as referenced above — include
the appointment of an external candidate as MD and CEO, Mr.
Ravneet Gill, and the appointment by the RBI of a retired RBI Deputy
Governor, Mr R. Gandhi, as an additional director at
the Board of the bank.
Moody's continues to maintain its assumption of a moderate probability
of government support for deposits and senior unsecured debt, reflecting
the bank's modest, but rapidly growing franchise, and relative
importance to India's banking system. This support assumption results
in a one notch uplift to the bank's foreign currency issuer rating
of Ba1 from its BCA of ba2.
In the review for downgrade, Moody's will consider the developments
in the bank's solvency profile, namely, asset quality,
capital, profitability, as well as any impact from the solvency
pressures on its funding and liquidity profile. Moody's will
also review the bank's corporate behavior in light of the changes
made and being made in the operations and strategy of the bank.
WHAT COULD CHANGE THE RATING UP
Given the review for downgrade, Moody's will unlikely upgrade
the bank's ratings over the next 12-18 months.
Nevertheless, Moody's could change the ratings outlook to
stable if Yes Bank (1) maintains its current asset quality profile,
and/or adequately provides for the stock of stressed assets; (2)
strengthens its loss absorbing buffers by raising equity capital to bring
its capital ratios in line with those of its similarly rated peers in
India; and (3) meaningfully reduces concentration risk on the asset
side and improves its liability profile.
WHAT COULD CHANGE THE RATING DOWN
Moody's could downgrade Yes Bank's ratings if (1) there is
a sustained deterioration in impaired loans or loan-loss reserves,
or if the rate of new nonperforming loan formation is significantly higher
than previously experienced; or (2) the bank's capital ratios decline
because of its inability to raise new capital, or both.
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Yes Bank Limited is headquartered in Mumbai and reported total assets
of INR3.8 trillion ($54.7 billion) at 31 March 2019.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Alka Anbarasu
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
