ICRA, India Ratings downgrade Yes Bank citing deteriorating asset quality
HYDERABAD : Trouble continues for Yes Bank with agencies downgrading the private lender’s ratings, citing inadequate progress on equity infusion and deteriorating asset quality. On Thursday, both India Ratings and ICRA Ratings separately downgraded Yes Bank, with the former placing it under ‘Negative Watch’, while the latter giving a ‘Negative’ outlook.
In the ongoing quarter, in the absence of any material recoveries and considering the expected slippages from the ‘BB’ and below rated loan book, ICRA expects Non-Performing Assets (NPA) to increase further.
It has downgraded all short- and long-term issuer ratings to ‘A’ and ‘Negative’ from ‘A+’ and ‘A’ respectively. The bank’s solvency profile is weak with net NPA/CET of 36 per cent as on September 2019, apart from the stressed exposures in the investment book.
With the delay in capital raise and a likely increase in NPAs, the capital and solvency profiles may weaken further. Hence, the need to raise capital is immediate. Given the decline in deposit based on Q2FY20, the level of deposits would remain a key monitorable, ICRA said.
With no capital raise in the ongoing quarter, ICRA also expects that the bank will need to step up its credit provisions amid declining advances to keep its net NPAs under check. The bank’s CET-1 stood at 8.1 per cent as on September, 2019.
Meanwhile, India Ratings, which downgraded Yes Bank’s short-term issuer rating to ‘A1’ from ‘A1+’ besides placing it under Rating Watch Negative, said the liquidity position of the bank seemed adequate in September 2019.
But without improvements on the capital side, the ability to manage its asset and liability maturities might be tested further, it said. It said the bank is likely to face balance sheet expansion challenges over short-to-medium term as it implements new strategies.
It will also have to continue to deal with the overhang of stressed assets and resultant credit costs. “In the near term, certain standard stressed group exposures (rated ‘BB’ and below) would continue to slip into the non-performing category. "The need to accelerate provisions on existing GNPAs and additional slippages along with the reduced pool of performing assets would keep the profitability of the bank under pressure,” the agency said.