India Ratings and Research (Ind-Ra) on Wednesday downgraded Yes Bank as Long-Term Issuer Rating to ‘IND A-‘ from ‘IND A’, while maintaining it on Rating Watch Negative (RWN).
The agency said that the downgrade reflects the continued delay and inconclusive quantum of the anticipated equity infusion in Yes Bank. The uncertainty over its capital infusion plan “could adversely impact the bank’s franchise and potentially create challenges on the asset and liability side”.
The agency notes that the bank has sizable foreign currency liabilities and institutional deposits. This rating action is a follow up of the rating rationale published by the agency on January 28 where the agency had stated that the rating would be reviewed in February 2020.
Ind-Ra is of the view that the required capital infusion is critical for providing sufficient cushion to the possible credit cost impact from the stressed asset pool on regulatory capital requirement in the short- and medium-term, as well as for the bank’s ability to continue to serve its customers adequately.
Although the liquidity position of the bank seemed adequate in end-September 2019 (liquidity coverage ratio of 114 per cent), Ind-Ra believes that in the absence of any swift capital raise, the bank’s ability to manage its asset and liability maturities could get tested further.
The bank continues to remain in discussion with various potential investors. However, Ind-Ra believes raising sizable capital in the very near term could be challenging and could require various regulatory and other approvals. The rating could be reviewed towards February-end.