Moody's puts Yes Bank's ratings on review for downgrade; independent director Mukesh Sabharwal quits

Private sector lender Yes Bank suffered a double blow on Tuesday when independent director Mukesh Sabharwal resigned, while Moody's placed the bank's ratings on review for downgrade.

Global rating agency Moody's Investors Service has placed Yes Bank's foreign currency issuer rating of Ba1 under review for downgrade, citing the private lender's sizeable exposure to finance companies.

"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," the rating agency said in a report.

According to the agency, 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.

As on March 31, 2019, Yes Bank's exposure to Indian housing finance companies (HFC) and non-bank finance companies (NBFC) was 6.4 per cent of its total exposure. In addition, Yes Bank had a 7 per cent direct exposure to the commercial and residential real estate sector, which is also under pressure, as liquidity conditions have worsened for the real estate sector, just like with the HFCs and NBFCs, Moody's said.

"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," the report said.

The agency has also taken into account the bank's disclosure of the stressed book and weak performance in fiscal 2019. "The bank's board has approved an up to USD 1 billion equity capital raise. If Yes Bank cannot raise the capital, its loss absorbing capacity and therefore financial profile will be under pressure," it said.

Moody's has maintained the negative adjustment for corporate behaviour 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.

Given the review for downgrade, Moody's will unlikely upgrade the bank's ratings over the next 12-18 months, the report noted.

In a fresh development, Lt Gen Mukesh Sabharwal has resigned as Non-Executive Independent Director, Yes Bank said in an exchange filing. The bank has proposed his re-appointment until April 24, 2020, but Sabharwal wanted to spend time on academic pursuits and hence has tendered his resignation, it added.

Meanwhile, Yes Bank shares closed trade at Rs 139.30 apiece, up 2.50 per cent, on the Bombay Stock Exchange on Tuesday.

Edited by Chitranjan Kumar

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