Moody's downgrades Yes Bank, ratings remain under review

Moody's Investors Service has downgraded Yes Bank Ltd's long-term foreign currency issuer rating to Caa3 from B2.

The ratings remain under review with the direction uncertain.

Moody's has also downgraded the bank's long-term foreign and local currency bank deposit ratings to Caa1 from B2, and its foreign currency senior unsecured medium-term note (MTN) programme rating to (P)Caa3 from (P)B2.

In addition, Moody's has downgraded the bank's long-term domestic and foreign currency counterparty risk rating (CRR) and long-term counterparty risk assessment (CR Assessment) to Caa1 from B1 and Caa1(cr) from B1(cr) respectively.

At the same time, Moody's has downgraded Yes Bank's baseline credit assessment (BCA) and adjusted BCA to Ca from Caa2.

"The downgrade of Yes Bank's issuer and senior unsecured MTN programme ratings to Caa3 from B2 and (P)Caa3 from (P)B2 respectively is a result of an event of default triggered by the Reserve Bank of India's (RBI) 30-day moratorium, which prevents Yes Bank from making a full and timely payment to its senior creditors," said Moody's.

Despite the event of default, the Caa3 rating takes into account Moody's expectation that although recovery rates for the banks' senior creditors may be high given the close involvement of the Indian authorities and stated intention to resolve the bank quickly, the ultimate timing and form of eventual resolution remains uncertain.

Actions by the authorities to date have not reduced the probability of default as evidenced by the moratorium announcement, and highlights the continued uncertainty around private sector bank resolutions in India and the recovery prospects for senior creditors.

Moody's said it could upgrade the ratings or change the outlook to stable if Indian authorities conclude a material capital raise, reconstruct the bank's assets and liabilities, or amalgamate the bank with another stronger bank, such that any action taken reduces the risks of losses to senior creditors and depositors.

Moody's could further downgrade the bank's ratings if Indian authorities are unable to resolve the bank within the planned moratorium period or if the moratorium is extended, such that it further impairs the bank's ability to make timely payments to depositors and senior creditors.

"Any risk of a likelihood of burden-sharing by Yes Bank's senior creditors in the bank's resolution will lead to a downgrade of the bank's senior debt ratings," it said.

Yes Bank reported total assets of 49.1 billion dollars (about Rs 3.5 lakh crore) on September 30, 2019.