Yes Banks ratings to remain unchanged, declares Moodys

Moody’s retains Yes Bank’s issuer, deposit and unsecured debt rating at ‘Baa3/P-3' with stable outlook, despite a change in leadership set to take place next year.

The Reserve Bank of India reduced the tenure of Mr. Rana Kapoor as the CEO and MD of Yes Bank until January 31, 2019, despite the shareholders pushing for an extension for three years. The rating stands unaltered owing to Yes Bank’s strong profitability and the bank’s ability to maintain low credit costs in the upcoming 12-18 months. In addition, Yes Bank’s profitability will remain secure because of the growth in interest and non-interest income.

RBI’s assessment of Yes Bank’s classification of non-performing assets (NPAs) revealed divergnces. As a result, Mr. Kapoor’s term was cut short.

In Q1 of FY18-19, Yes Bank registered a growth of 31 per cent at Rs. 1,260.40 crore. Its gross NPAs surged 1.3 per cent against 1.28 per cent in the previous quarter. However, the net NPAs dropped to 0.59 per cent in comparison to 0.64 per cent, sequentially.

The financial stability of Yes Bank is reflected in its improved funding; superior asset quality vis-à-vis other rated Indian banks focused on corporate lending and its stable profitability. However, these strengths are offset by Yes Bank’s swift asset expansion which threatens its credit profile.

The rise in current and savings accounts (CASA) and retail term deposits has rendered a tremendous improvement to the bank’s funding structure and lowered its dependence on wholesale funding.

The rating agency predicts Yes Bank’s loan growth at 35-40 per cent annually to outrun the industry average of about 10 per cent in the imminent 12-18 months. In addition, they observed that while the bank’s capitalization is adequate, the bank will have to raise capital from external sources in order to maintain the same.

Factors that could drive Yes Bank’s rating up include maintaining current asset quality ratios while reducing credit risk concentration, improvement in the bank’s funding profile by increasing its CASA with respect to total deposits, sustaining profitability and maintaining indispensable loss-absorbing safeguards.

Similarly, the factors that could drive Yes Bank’s ratings down include sustained deterioration in impaired loans or loan loss reserves, dwindling earnings that would impair the bank’s ability to generate capital internally, and higher than usual rate of NPA formation.

On Thursday, the share price of Yes Bank stood at Rs. 318.50 per share, down 1.44 per cent.