Money & Banking

ICRA downgrades long-term rating of YES Bank, maintains negative outlook

Our Bureau Mumbai | Updated on July 24, 2019 Published on July 24, 2019

Lender’s ability to raise capital, considering its recent performance and earnings guidance, remains to be seen, says the rating agency

Rating agency ICRA has downgraded the long-term ratings of YES Bank and has maintained the ‘negative’ outlook with concerns over high stressed assets and weakening of CET-1 after the lender posted its first quarter results.

“ICRA has downgraded Basel III-Compliant Tier I and Tier II Bonds of YES Bank Limited (YBL) with a ‘negative’ outlook,” it said in a statement on Wednesday.

Net profit falls

In its first quarter results announced on July 17, YES Bank had managed to return to the black, but its net profit fell by 91 per cent to ₹113.76 crore, from ₹1,260.36 crore in the same period a year ago. Gross NPAs also shot up to 5.01 per cent of gross assets as on June 30, 2019, compared to 1.31 per cent a year ago.

ICRA had earlier downgraded its long-term ratings on YES Bank on May 3, and had kept them on ‘negative’ outlook. Other rating agencies had also taken action at the time, and Moody’s had placed it under review for a downgrade.

The latest rating downgrade factors in the increase in stress, as reflected by the increase in BB and below-rated exposures, despite slippages from these exposures, as well as the lack of resolutions, ICRA said.

The downgrade also factored in the weakened CET-1 and also questioned YES Bank’s ability to raise capital in the near term after its weak earnings.

The lender’s CET-I declined to 8 per cent as on June 30, 2019, from 8.4 per cent as on March 31, 2019, against the minimum regulatory requirement of 7.375 per cent for March 31, 2019, and 8 per cent for March 31, 2020. “The bank would need to raise capital on an immediate basis. While the board has approved a capital-raise of $1 billion, YES Bank’s ability to raise capital, considering its recent performance and earnings guidance, remains to be seen,” ICRA said, adding that the bank will also need to accelerate the resolution and recovery from stressed exposures, and will also need to calibrate growth to restore the capital cushion.

While the rating agency took into account YES Bank’s stable deposit base, it has warned of a downgrade if the gross non-performing assets plus BB and below-rated exposures materially increase or if there are delayed and limited recoveries in stressed exposures, resulting in higher-than-expected credit provisioning.

“Moreover, given the immediate need for improvement in the capital cushion, the inability to do so or to granularise the advances and liabilities will be a credit negative,” ICRA said. The YES Bank scrip fell 1.71 per cent on Wednesday and closed at ₹89.15 apiece on the BSE.

Published on July 24, 2019

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