New Delhi: Downgrading the outlook from stable to negative, Moody’s Investors Service on Tuesday positioned Yes Bank’s foreign currency issuer rating to Ba1 from Baa3.
Credit rating agency Moody’s also downgraded the bank’s foreign and local currency bank deposit ratings to Ba1/NP from Baa3/Prime-3, and foreign currency senior unsecured MTN program rating to (P)Ba1 from (P)Baa3.
Downgrading Yes Bank’s baseline credit assessment (BCA) and adjusted BCA to ba2 from ba1, Moody’s also affirmed the bank’s counterparty risk assessment (CR Assessment) of Baa3(cr)/P-3(cr) and domestic and foreign currency counterparty risk rating (CRR) of Baa3/P-3.
As per Moody’s, the action considers the resignation of various members of the bank’s Board of Directors — which, when seen in conjunction with the Reserve Bank of India’s (RBI) directive in September 2018 to restrict the term of the bank’s MD and CEO, Rana Kapoor, till 31 January, 2019 — have raised Moody’s concerns over corporate governance.
In Moody’s opinion, although the bank’s reported credit fundamentals remain stable, the developments surrounding the transition in leadership as well as the governance issues are credit negative because they complicate management’s effective implementation of the bank’s long-term strategy.
Furthermore, these developments could constrain the bank’s ability to raise new capital.
Although Yes Bank’s capitalization is adequate, the bank would need to raise capital from the market to continue to grow its balance sheet more rapidly than the Indian banking system.
In addition, while its current asset quality metrics are superior to those of its Indian peers, its aggressive growth strategy poses asset risks. In particular, Moody’s has noted significant divergence in the bank’s reported asset quality metrics compared with the RBI’s assessment of asset quality in the two fiscal years ended March 2017 and 2016.
Despite these developments, Moody’s notes that the bank’s funding and liquidity positions have remained fairly stable. Nevertheless, its funding profile is relatively weaker compared to other public sector banks in India, as measured by its low current and savings account deposit ratio and the dominance of corporate deposits.