Credit rating agency ICRA downgrades long-term rating of Yes Bank; outlook remains negative

Rating agency ICRA has downgraded long-term ratings of Yes Bank along with a negative outlook. The bank’s ability to reduce its BB and below rated exposures through resolution and prevent a further increase in the same, as well as its ability to improve its CET-I capital cushion, were highlighted as key rating sensitivities among others.

#JustIn | ICRA downgrades long term ratings of @YESBANK; Outlook remains negative pic.twitter.com/9Wa8khYNXK

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On 3 May, 2018, ICRA had downgraded Yes Bank’s long-term ratings with a negative outlook citing a spike in its lower-rated advances and falling core capital buffers. The bank’s Tier-1 and Tier-2 bonds and infrastructure debt were downgraded to AA- from AA. The upper Tier 2, Tier 1 notes were given an A+ from AA-.. The credit ratings downgraded the ratings on instruments totalling borrowings over Rs 33,000 crore by the lender, Icra said. The bank had also reported its maiden loss of over Rs 1,506 crore in the March quarter, driven by a near ten-fold spike in provisions. “The rating downgrade factors in the increase in stress, as reflected by the increase in BB and below rated exposures despite slippages from these exposures, as well as the lack of resolutions,” ICRA said in a press release. [caption id=“attachment_5595711” align=“alignleft” width=“380”]  Representational image. Reuters.[/caption] Yes Bank’s gross non-performing advances (GNPAs) and BB and below rated exposures increased to Rs. 41,558 crore as on 30 June 2019 from Rs 30,772 crore as on 31 March 2019. After the provisions made on these exposures, the net BB and below rated exposures and net NPAs (NNPAs) were Rs 34,082 crore as on 30 June 2019 compared to Rs. 24,741 crore as on 31 March 2019. With the increased stressed portfolio, the credit provisioning is expected to remain high, translating into a moderation in the earnings profile in the near term. Any normalisation thereafter will be driven by the resolution of stressed advances, ICRA said. Given the sizeable stressed exposure in relation to the equity capital, the accelerated resolution of these exposures would remain a key rating sensitivity. The rating downgrade also factors in the further weakening in YBL’s core equity (CET-I) capital cushions with the growth in RWAs and elevated provisioning leading to subdued profitability. The CET-I declined to 8.0 percent as on 30 June 2019 (8.4 percent as on 31 March 2019 and 9.70 percent as on 31 March 2018) against the minimum regulatory requirement of 7.375 percent for 31 March 2019 and 8.0 percent for 31 March, 20202 . Hence, the bank would need to raise capital on an immediate basis, ICRA said. While the board has approved a capital raise of $1 billion, YBL’s ability to raise capital considering its recent performance and earnings guidance remains to be seen. The bank will also need to accelerate the resolution and recovery from stressed exposures and will also need to calibrate growth to restore the capital cushion.