Mumbai: After issuing two downgrade warnings since June 11, global rating agency Moody's Wednesday yanked down private sector lender Yes Bank's ratings further with a negative outlook, citing the lower-than-expected capital raising from the recent QIP issue and the plunging share prices that's a hurdle in raising more funds.
The agency downgraded the bank's long-term foreign- currency issuer rating to Ba3 from Ba1, which is below investment grade or junk status.
Moody's had in June and July warned of rating downgrade and had placed the bank on rating watch for possible downgrades.
The agency also downgraded the long-term foreign and local currency bank deposit ratings to Ba3 from Ba1, foreign currency senior unsecured MTN programme to Ba3 from Ba1, and the baseline credit assessment to B1 from Ba2.
"The downgrade takes into account the lower-than- expected amount of capital raised by Yes Bank recently and the risks that the substantial decline in its share price, which will challenge its ability to raise sufficient capital to maintain the rating at its previous level," Moody's said.
The bank had on August 14 raised Rs 1,930 crore in new capital via a qualified institutional placement, which will moderately improve its reported common equity tier 1 ratio to 8.6 percent from 8 percent as of end June.
The agency said the bulk of its operating profit will get consumed by loan loss provisions over the next 12-18 months, and thus not support internal capital generation.
"This will leave the bank dependent on external capital raising to improve its loss-absorbing buffers, which in our opinion is becoming more challenging given the substantial decline in its share price," it said.
The agency said the negative outlook reflects the risk of further deterioration in the bank's solvency, funding or liquidity, as it continues to work through asset quality issues and rebuilds its loss absorbing buffers.
Its asset quality deteriorated in the June quarter, with its gross NPL ratio rising to 5 percent from 3.2 percent by March 2019.
As of end March 2019, nearly Rs 10,000 crore of loans or about 4 percent of its total loans remain on the watchlist, meaning it expects these loans may translate into NPAs over the next two-three quarters.
The agency said it could change the ratings outlook to stable if the bank maintains its current asset quality profile and concludes a further material capital raise that strengthens its loss absorbing buffers.
However, there can be further rating downgrade if there is a sustained deterioration in its impaired loans or capital ratios declines because of losses and if its funding or liquidity deteriorates, the agency said.
Since last August, when RBI refused to accept the reappointment of its co-founder and CEO Rana Kapoor for a three year term and asked him to leave the bank by end January 2019, its share price has tanked around 85 percent.
The Yes Bank counter tanked another 7.5 percent Wednesday to a low Rs 59.50 on the BSE after plumbing a new low of Rs 53. 15. Its 52 week high was Rs 388 and on the day RBI had asked Kapoor to leave it was trading at over Rs 400.