Moody's upgrades Yes Bank's rating to Ba3 from B2, changes outlook to stable

Moody's Investors Service has upgraded Yes Bank Limited's long-term foreign currency issuer rating and long-term foreign and local currency bank deposit ratings to Ba3 from B2 and the bank's Baseline Credit Assessment (BCA) and Adjusted BCA to b1 from b3.

Moody's has also changed the outlook on Yes Bank's ratings where applicable to stable from positive.

The upgrade of Yes Bank's BCA and ratings reflects the bank's planned equity capital raise, which will support its credit profile and strengthen its resilience against potential asset quality risks arising from headwinds such as higher inflation and tighter global financial conditions. The stable rating outlook reflects Moody's expectation that the bank's credit profile will improve at a gradual pace because it will take time for the bank to establish its competitive strengths.

On 29 July 2022, the bank announced that it will be raising equity capital of around INR89 billion ($1.1 billion) from funds affiliated with The Carlyle Group and Advent International, with each investor potentially acquiring up to a 10% stake in the bank. The capital raise comprises two parts: (1) INR51 billion ($640 million) in equity shares and (2) INR38 billion ($475 million) through equity share warrants that will be exercisable only after 1 April 2023. The transaction is pending approvals from shareholders, the regulator and competition commission in India.

Moody's estimates that the first part of the capital raise will result in an increase of 2.2 percentage points in the bank's consolidated Common Equity Tier 1 (CET1) ratio from 11.9% as of the end of June 2022, after including profit for the June quarter. The second part of the capital raise will add another 1.6 percentage points.

Yes Bank's reported nonperforming loan (NPL) ratio declined moderately to 13.4% as of the end of June 2022 from 16.8% as of the end of March 2020, while its loan loss coverage increased to 82% from 78% over the same period. However, the bank's off-balance-sheet exposures to NPLs, restructured loans and loans overdue for more than 60 days pose risks to asset quality. These items accounted for around 7% of total loans as of the end of June 2022. The bank's plan to transfer the bulk of its NPLs to an asset reconstruction company will be credit positive because it will ease management burden on resolving legacy problem assets and help the bank focus on growing its assets and liabilities.

Return on tangible assets (ROTA) improved to 0.3% in the financial year ended March 2022 (FY2021), its first year of profits since FY2019 when it entered the central bank-led reconstruction scheme, because of lower credit costs. Moody's expects Yes Bank's ROTA to rise gradually over the next 12-18 months as it restarts loan growth and the burden of credit costs eases.

Funding and liquidity also improved as the bank grew its deposits and reduced its reliance on market funds. Its daily average liquidity coverage ratio also improved to 116% as of 30 June 2022 from 40% as of 31 March 2020.

Yes Bank's issuer and deposit ratings benefit from one notch of rating uplift, based on Moody's expectation of a moderate probability of support from the Government of India (Baa3 stable). The support assumption is in line with the support expected for other private-sector banks in India.

Shares of Yes Bank Limited was last trading in BSE at Rs. 16.68 as compared to the previous close of Rs. 16.47. The total number of shares traded during the day was 38212048 in over 48198 trades.

The stock hit an intraday high of Rs. 17.05 and intraday low of 16.34. The net turnover during the day was Rs. 638128289.00.

Source : Equity Bulls

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