Yes Bank Shares Drop 5.8% After Moody’s Downgrades Long-term Ratings

Yes Bank Ltd shares dropped as much as 5.8% on Friday after Moody’s Investors Service downgraded the lender’s long-term ratings with a negative outlook on the back of asset quality concerns and low capital buffers.

At 10:55 am, shares of Yes Bank were trading at Rs 58.85, down 5.2%, after hitting the day’s low of Rs 58.50. Notably, the stock has lost over 12% in the last five trading sessions.

Moody’s on Thursday downgraded Yes Bank’s long-term foreign-currency issuer rating to B2 from Ba3. It also downgraded the bank’s long-term foreign and local currency bank deposit ratings to B2 from Ba3, foreign currency senior unsecured MTN programme rating to (P)B2 from (P)Ba3, and Baseline Credit Assessment (BCA) and Adjusted BCA to b3 from b1.

Moody’s notes that though Yes Bank has claimed to receive offers from a number of financial investors to invest up to $2 billion through new equity capital into the bank, significant execution risks remain around the timing, price and regulatory approvals required for the same. Yes Bank’s board will meet on 10 December to finalise the fund-raising plans.

The ratings agency said that Yes Bank’s pool of potential stressed assets and low loss-absorbing buffers against those assets will add more pressure to its funding and liquidity, creating additional risks to its credit profile.

Also, the lender’s common equity tier-I ratio, which stood at 8.7% in September, is likely to come under “significant pressure” unless it gets fresh capital, Moody’s warned.

“The rating actions reflect Moody’s view that Yes Bank’s funding and liquidity compares weakly to other rated private sector peers in India, and could come under pressure if the bank cannot strengthen its solvency in the next few quarters,” said Moody’s.

The agency also clarified that, given the negative outlook, it is unlikely to upgrade Yes Bank’s ratings over the next 12-18 months. Though it might change the outlook to stable if the lender concludes a material capital raise that strengthens its loss-absorbing buffers, Moody’s added.