Yes Bank Limited: Ratings upgraded by Credit Rating Agency, ICRA

ICRA, Credit Rating Agency has upgraded the credit ratings assigned to the debt instruments of YES Bank.

The ratings of Infrastructure Bond Programme and Basel II Compliant Lower Tier II Bond have beeng upgraded from BB+ (Rating watch) to BBB( Stable).

The rating of Basel III Compliant Tier II Bond has been upgraded from BB/hyb (Rating watch) to BBB- (hyb)(Stable.

The ratings of Basel II Compliant Tier I Bond and Basel II Compliant Upper Tier II Bond have upgraded from D to BB+/(Stable).

The rating upgrade factors in the sizeable capital raise of Rs. 15,000 crore in July 2020, which has resulted in an improvement in the capital ratios of Yes Bank Limited (YBL). The ratios are now comfortably above the regulatory levels. The capital raise follows the Government-approved reconstruction scheme implemented in Q4 FY2020, under which equity capital of Rs. 10,000 crore from State Bank of India (SBI; rated [ICRA]AAA (Stable) for Tier II bonds) and other domestic institutions was infused into the bank. Besides the reconstruction of the bank, the board was reconstituted with a new Managing Director (MD) and Chief Executive Officer (CEO; former Deputy MD & CFO of SBI). Moreover, two other nominee directors were appointed by SBI and two by the Reserve Bank of India (RBI).

The rating upgrade also factors in the improvement in the bank's liquidity position after the stability and subsequent increase in its deposit base. This, coupled with the recent capital raise, has helped YBL fully repay the Special Liquidity Facility (SLF) extended to it by the RBI.

While the improvement in the capital position remains a key positive for the bank, the Covid-19-induced stress on the residual corporate book as on June 30, 2020 (~5% of standard advances were overdue) are likely to keep the credit costs at elevated levels in the near term. The management has guided towards a slippage of ~5% in FY2021. Despite having the flexibility to restructure loans, ICRA estimates that the slippages and credit costs will remain high in a stress scenario.

ICRA notes that following a sharp decline in the overall scale in FY2020, efforts towards gradually scaling up its deposit franchise will be critical for maintaining YBL's scale of operations and operating profitability. The bank's ability to improve its operating profitability, through cost rationalization efforts and improved scale of operations amidst relatively higher cost of funds and diminished non-interest income will remain a challenge. Against this backdrop, elevated credit costs are likely to impact the overall internal capital generation, which could narrow the capital cushions from the levels witnessed after the recent capital raise. However, ICRA expects timely capital and liquidity support to be forthcoming from various stakeholders, if required, as demonstrated in the recent past. Thus, the removal of the rating watch and the assignment of a Stable outlook factors in ICRA's expectations that the bank will continue to maintain its capital position above the regulatory levels.

Shares of YES BANK LTD. was last trading in BSE at Rs.14.61 as compared to the previous close of Rs. 13.92. The total number of shares traded during the day was 29428688 in over 21559 trades.

The stock hit an intraday high of Rs. 14.61 and intraday low of 14.25. The net turnover during the day was Rs. 426594999.

Source : Equity Bulls

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