YES Bank shares in focus as CARE revises debt instrument ratings. Key details

Shares of YES Bank are in focus on Thursday morning after CARE Ratings revised upward the rating it assigned to debt instruments of the private lender, citing continued growth in business with focus on granularisation of advances and increase in the proportion of retail and small & medium enterprises

(SME) lending. It also cited reduction in the higher ticket corporate lending segment, in addition to growth in the deposit franchise for its rating upgrade.

CARE revised its rating on Rs 5,000 crore worth infrastructure bond facilities to CARE A from CARE A- while keeping its positive outlook stance intact. It revised its rating on Rs 8,900 crore tier II bonds to CARE A from CARE A-, while it assigned Rs 20,000 crore worth certificate of deposit (CDs) to CARE A+.

The rating agency said YES Bank has shown stable growth in retail deposits and the current account and savings account (CASA) deposits, adequate capitalisation level and improvement in the asset quality parameters due to lower incremental slippage and sale of non-performing assets (NPAs) to JC Flower Asset Reconstruction Company (ARC).

The ratings factor in the improvement in the credit risk profile of the bank post the implementation of the reconstruction scheme, it said. "Further, the ratings factor in adequate capitalisation, which strengthened during FY23 (refers to the period from April 01 to March 31) through capital infusion of Rs 6,037 crore as envisaged for FY23 which is part of the planned equity infusion of Rs 8,898 crore by way of preferential allotment of equity shares and equity warrants, while the remaining Rs 2,846 crore is expected to be infused in the near term, which would provide support for growth and any credit losses," CARE said.

The ratings, CARE said, are constrained by continued dependence on wholesale/bulk deposits and although the bank has shifted focus on retail and SME loans, the track record remains limited which needs to be monitored over a period of time, it said.

"Further, the proportion of stressed assets remains relatively higher, and profitability muted. The bank has seen recoveries and upgrades from bad accounts which have offset the slippages during FY23, keeping NPA levels stable in absolute terms," it said.

CARE said while the bank has been making provisions to increase its provision coverage, which has kept the credit costs elevated and profitability moderate, the ability of the bank to maintain the asset quality once the performance of the relatively new retail products is established, would be a key rating monitorable.

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