Moody's downgrades Yes Bank's foreign issue rating

New Delhi: Moody's Investors Service on Wednesday said it has downgraded Yes Bank's long-term foreign-currency issuer rating and has kept the outlook at negative. The long-term foreign currency issuer rating has been lowered to non-investment grade Ba3 from Ba1.

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

It said the downgrade is on account of lower than expected amount of capital raised by the lender recently as well as the risk related to substantial decline in its share price."The outlook on the bank's ratings, where applicable, is negative. Today's rating action concludes the review for downgrade initiated on June 11, 2019," Moody's said.

The firm said the negative outlook primarily reflects the risk of further deterioration in the bank's solvency, funding or liquidity, as it continues to work through the asset quality issues and rebuilds its loss absorbing buffers. Fall in share price will challenge the bank's ability to raise sufficient capital to maintain the rating at its previous level, it said.

On August 14, the bank raised Rs 1,930 crore as fresh capital through a qualified institutional placement (QIP). "On a pro-forma basis, the QIP will moderately improve the bank's reported common equity tier 1 (CET1) ratio as of June 30, 2019 to 8.6 per cent from 8 per cent.

Furthermore, Moody's expects the bulk of Yes Bank's operating profits will get consumed by loan loss provisions over the next 12-18 months, and thus not support internal capital generation," it said. 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.

The private sector lender has witnessed deterioration in its asset quality in the first quarter ended June with gross non-performing assets (NPAs) hitting 5 per cent as against 3.2 per cent by end of March 2019.