Shares of YES Bank snapped a five-day losing run in Monday's trade after rating agency Moody's maintained its ratings of four of YES Bank's instruments while assigning its credit outlook on the private lender 'stable'.
Moody's re-affirmed its long-term foreign currency issuer rating for YES Bank at Ba3, long-term (local and foreign currency) deposit rating at Ba3, baseline credit assessment (BCA) and adjusted BCA at b1 and senior unsecured (Foreign Currency) medium-term note program at (P)Ba3.
Moody's said an upgrade of YES Bank's ratings is unlikely over the next 12-18 months but said it could upgrade the ratings if the bank establishes a credible and sustainable strategy to improve its profitability, specifically if its return on tangible assets increases sustainably to above 0.8 per cent, without compromising asset quality and capital.
"Moody's could downgrade YES Bank's ratings if its asset quality significantly deteriorates, leading to an erosion of its profitability and capital; or if the turnaround of the bank fails because of an aggressive financial strategy and risk management. Specifically, a decline in its total common equity/risk-weighted assets to below 6 per cent and its net income/tangible assets to below 0.5 per cent will exert downward pressure on the BCA. Any weakening in Yes Bank's funding and liquidity would also be negative for the rating," Moody's said.
Moody's said YES Bank's issuer and deposit ratings benefit from one notch of rating uplift, based on Moody's expectation of a moderate probability of support from the government of India (Baa3 stable). This support assumption is in line with the support expected for other private-sector banks in India, it said,
Moody's rating announcement came days after the private bank, post market hours of Friday, said its board has approved raising funds in up to an amount of Rs 2,500 crore by issue of debt securities including but not limited to non-convertible debentures, bonds and medium term note (MTN) etc.
The bank, which has largest retail investors, saw its shares rising 2 per cent to Rs 16.30 on BSE. The scrip had risen only in one out of last 10 trading sessions. Moody's expects YES Bank's asset quality to be stable as the bulk of its legacy problem assets have been resolved, while India's good economic momentum will support the performance of its newly originated loans.
YES Bank’s gross nonperforming loan (NPL) ratio declined to 2.2 per cent at the end of March from 13.9 per cent a year ear1ier, following its sale of nonperforming loans (NPL) to an asset reconstruction company (ARC) in 2022. Its loan loss coverage declined to 62 per cent at the end of March 2023 from 71 per cent a year ear1ier following the NPL sale, but Moody's expects it will recover as the bank rebuilds its loan loss reserves.
YES Bank's capital improved post a capital raise from private investors in 2022, with its Common Equity lier 1 (CET1) ratio rising to 13.3 per cent at the end of March 2023 from 11.6 per cent a year ear1ier. The private investors have also subscribed to equity share warrants, which will likely convert in 2024.
"Based on the bank's capital position at the end of March 2023, Moody's estimates that the conversion of equity share warrants will provide a further 1.5 percentage point boost to the bank's CET1 ratio. The bank's return on assets declined to 0.2 per cent in fiscal 2023 from 0.4 per cent in fiscal 2022 as it increased provisions against its non-performing assets. Moody's expects Yes Bank's profitability to gradually improve over the next 12-18 months as it restarts loan growth and the burden of credit costs eases," the rating agency said.
Moody’s noted that YES Bank's funding and liquidity also improved as its deposits grew. YES Bank's average liquidity coverage ratio rose to 119 per cent for the March quarter from 115 per cent in the year-ago quarter.
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