India Ratings and Research (Ind-Ra) has downgraded Yes Bank’s long-term issuer rating to A from A-plus and its short-term issuer rating to A1 from A1-plus.
The agency has simultaneously placed the ratings on rating watch negative (RWN). The outlook on earlier rating was negative.
Ind-Ra said the downgrade reflects Yes Bank’s inadequate progress with respect to the quantum and pace of equity infusions which is critical for providing sufficient cushion for the credit cost impact of the stressed asset pool.
The liquidity position of the bank seemed adequate at September-end. But in the absence of improvements on capital side, the bank’s ability to manage its asset and liability maturities may be tested further.
Ind-Ra said the bank is likely to face balance sheet expansion challenges over short-to-medium term as it implements new strategies.
It will also have to continue to deal with the overhang of stressed assets and resultant credit costs and the possibility that its steady state non-interest income can reduce substantially from the historical peaks under a benign case scenario.
These three factors can have at least a medium-term bearing on the income profile of the bank. Some of these issues can aggravate if the bank is unable to raise adequate amount of equity in a timely manner.
In the near term, Ind-Ra expects certain standard stressed group exposures (rated BB and below) of the bank to continue to slip into the non-performing category.
The need to accelerate provisions on existing GNPAs and additional slippages along with the reduced pool of performing assets will keep the bank’s profitability under pressure. The RWN reflects the dependency of rating level on the timing and quantum of equity raised by the bank.
Ind-Ra said it considered an equity infusion of $1 billion to $1.2 billion into the bank in the next few weeks.
However, the ratings are constrained by lower capital buffers, the relatively large portion of the book that is rated BB and below, the comparatively high, albeit improving, proportion of bulk funding, and higher asset liability tenor mismatches compared with large private sector peers.
Source: NDTV Profit