Money & Banking

Moody’s downgrades YES Bank; cites meagre capital raising, weak stock price as reasons

Our Bureau Mumbai | Updated on September 26, 2019 Published on August 28, 2019

Global rating agency Moody's on Wednesday downgraded Yes Bank's ratings. File Photo   -  Bloomberg

Global rating agency Moody’s on Wednesday downgraded Yes Bank's ratings and said the outlook is negative, wherever applicable.

The downgrade takes into account the lower-than-expected amount of capital raised by the bank recently and the risk that the substantial decline in the bank’s share price will challenge its ability to raise sufficient capital to maintain the rating at its previous level, the agency said.

“Today’s rating action concludes the review for downgrade initiated on June 11, 2019, it said in a statement. It had previously warned of a downgrade risk in June and July.

Moody’s has now downgraded YES Bank’s long-term foreign-currency issuer rating to Ba3 from Ba1.

It has also downgraded the bank’s long-term foreign and local currency bank deposit ratings to Ba3 from Ba1, foreign currency senior unsecured MTN programme rating to (P)Ba3 from (P)Ba1, and the Baseline Credit Assessment (BCA) and the adjusted BCA to b1 from ba2.

The ratings action comes soon after the lender raised ₹1,930 crore on August 14 as capital through a qualified institutional placement, which will moderately improve its reported common equity tier 1 ratio to 8.6 per cent from 8 per cent as of end June.

 

Read more: Yes Bank QIP: 5 investors account for 65.5 per cent of total ₹ 1,930 cr raised

 

Threat to capital generation

Moody’s said it expects the bulk of the bank’s operating profits to get consumed by loan loss provisions over the next 12 to 18 months, and therefore, not support internal capital generation.

“This will leave the bank dependent on external capital raising to improve its loss-absorbing buffers, which, in Moody’s opinion, is becoming more challenging given the substantial decline in its share price,” it said.

Also read: Yes Bank board to meet on August 30 for further fund raising

YES Bank’s board of directors is set to meet on August 30 to consider further capital raising and the downgrade could impact this.

According to market sources, the bank could potentially look to raise another $1 billion with the exercise taking place in the course of the current quarter.

The YES Bank scrip, which has been under pressure due to weak results and concerns over its exposure to CG Power, fell 7.47 per cent and closed at ₹59.50 apiece on the BSE.

 

Related news: More pain ahead for YES Bank investors

Published on August 28, 2019
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