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India Ratings and Research (Ind-Ra) has rated Yes Bank Ltd's Basel III AT1 perpetual bonds

Posted On: 2017-10-17 18:48:38

YES Bank has received ratings from India Ratings & Research Private Limited (India Ratings) for Basel III Compliant Tier I Bonds for an amount of Rs. 7,500 Crore.

Ind-Ra has notched down the rating for Yes Bank's AT1 bonds from its Long-Term Issuer Rating. For rating AT1 instruments, the agency considers 'discretionary component', 'coupon omission risk', and 'write-down/conversion risk' as the key parameters. The agency has recognised the unique going-concern loss absorption features that these bonds carry and differentiated them from the bank's senior debt (one notch in this case), factoring in a higher probability of an ultimate loss for investors in these bonds. Ind-Ra envisages coupon deferrals and principal write-down risk as a remote possibility in view of Yes Bank's financial strength, adequate revenue reserve buffers and its track record of consistent operating performance through cycles.

The rating factors in the bank's ability to manage its credit risk, reasonably large and expanding franchise, sufficient levels of capitalisation post equity infusion and improved profitability buffers. The bank's robust fee income profile from the corporate segment helps it support its operating profitability. However, the rating also factors in Yes Bank's proportion of bulk funding being relatively high than that of better rated peers. Although the former's concentration on the deposits side has been improving, depositor concentration remains higher than its larger peers'. Additionally, the bank has an asset-liability tenor gap, on account of a lower share (though improving) of the current account and saving account deposit ratio than larger peers'.

The Stable Outlook reflects Ind-Ra's expectation that any deterioration in Yes Bank's asset quality would be adequately absorbed by its operating profits without any impairment in its Tier 1 capitalisation (June 2017: Tier 1 ratio: 13.8%). Ind-Ra expects the bank's credit cost to remain in the range of 75bp-80bp in FY18, factoring in the limited impact of the accelerated provisioning (at least 50% on identifies accounts by FYE18) on the accounts identified under the Insolvency and Bankruptcy Code for reference to the National Company Law Tribunal. Furthermore, the bank's reasonable pre-provision profitability provides a cushion to absorb spikes in the credit costs under Ind-Ra's stress scenarios. The agency also expects the bank to maintain above-average core capitalisation on an ongoing basis, in line with its higher rated private sector peers'.

Shares of YES BANK LTD. was last trading in BSE at Rs.373.3 as compared to the previous close of Rs. 367.5. The total number of shares traded during the day was 312103 in over 4169 trades.

The stock hit an intraday high of Rs. 375.75 and intraday low of 368. The net turnover during the day was Rs. 116550525.

Source: Equity Bulls

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