Moody's upgrades Yes Bank's issuer rating to 'B2'; revises outlook to 'positive'

Yes Bank said that Moody's Investors Service has upgraded the bank's long-term foreign currency issuer rating and long-term foreign and local currency bank deposit ratings to 'B2' from 'B3'.

Moody's has also upgraded Yes Bank's Baseline Credit Assessment (BCA) and Adjusted BCA to 'b3' from 'caa2'.

At the same time, Moody's has changed the outlook on Yes Bank's ratings where applicable to 'positive' from 'stable', reflecting Moody's expectation of a further improvement to the bank's credit profile, driven by a cleanup of legacy stressed assets and/or improvements to its capital and profitability.

Offering rating rationale, Moody's said the upgrade in Yes Bank's issuer rating is because its funding and liquidity have substantially improved in the past year, which have strengthened depositor and credit confidence in the bank.

The rating action also reflects the fact that despite the significant economic challenges since the onset of the pandemic, Yes Bank's asset quality has deteriorated only modestly while its capital has remained stable.

Yes Bank's asset quality remains weak and continues to pose risks to its profitability and capital. While its reported nonperforming loan (NPL) ratio declined moderately to 15% as of 30 September 2021 from 17% as of 31 March 2020, the bank's off-balance sheet exposures to NPLs, restructured loans and loans overdue for more than 60 days, which represent 5.5% of total loans as of 30 September 2021, pose risks.

The bank plans to transfer a large share of NPLs to an asset reconstruction company over the next 12 months. Subject to the terms and conditions of the transaction, Moody's expects the NPL transfer will be credit positive as it will ease management burden on resolving legacy problem assets and help the bank focus on growing its assets and liabilities.

High NPLs and a moderation in credit growth have hurt Yes Bank's revenues, while operating costs remain high relative to its revenues. Moody's expects that boosting profitability will remain a credit challenge until the bank manages to stabilize its franchise, lower NPLs and grow its assets.

The bank's Common Equity Tier 1 ratio of 11.5% as of 30 September 2021 provides moderate cushion against unexpected risks. Moody's expects Yes Bank will need to raise new equity capital in the next 12 months to support asset growth because its modest profitability does not support internal capital generation.

Given the positive outlook, Moody's could upgrade Yes Bank's ratings if the bank's asset quality and/or capital materially improve.

The credit ratings agency could downgrade the bank's ratings and BCA if its capital deteriorates significantly because of a strain on its asset quality, or if its funding and liquidity deteriorate.

Yes Bank is a full service commercial bank providing a complete range of products, services and technology driven digital offerings, catering to corporate, MSME & retail customers.

The bank's net profit rose 74.31% to Rs 225.50 crore on 7.06% decline in total income to Rs 5430.30 crore in Q2 September 2021 over Q2 September 2020.

The scrip shed 0.38% to end at Rs 13.03 on the BSE yesterday.

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