Mumbai: Moody's Investors Service on Tuesday placed private lender Yes Bank's foreign currency issuer rating of Ba1 under review for downgrade, saying it expects the ongoing liquidity pressures on Indian finance companies will negatively impact the credit profile of the bank given the bank's sizeable exposure to weaker companies in the sector.
The ratings agency also placed the bank's long-term foreign and local currency bank deposit ratings of Ba1, foreign currency senior unsecured MTN program rating of (P)Ba1, and Baseline Credit Assessment (BCA) and adjusted BCA of ba2 under review for downgrade.
At March end, Yes Bank's exposure to Indian housing finance companies (HFC) and non-bank finance companies (NBFC) represented 6.4 per cent of its total exposure, the ratings agency pointed.
In addition, Yes Bank had a 7 per cent direct exposure to the commercial and residential real estate sector as of the same date, which is also under pressure, because liquidity conditions have worsened for the real estate sector, just like with HFCs and NBFCs.
In April, the bank classified about Rs 100 billion of its exposures, representing 4.1 per cent of its total loans under the watchlist, that could translate into nonperforming loans over the next 12 months.
“Taking into account the bank's own disclosure of the stressed book, as well as Moody's expectation of stress in the Indian HFC, NBFC and real estate sectors, Moody's expects significant pressure on the bank's asset quality and therefore profitability and capital position,” Moodys said in a release.
Nevertheless, the impact will be somewhat cushioned by the bank's proactive loan loss provisioning for anticipated stress, it said pointing that during the fiscal year ended March , the bank made loan loss provisions of about 20 per cent for the loans on the watchlist.
The bank's weak performance in fiscal 2019 led to its capital, as measured by the common equity tier 1 ratio, falling to 8.4 per cent from 9.7 per cent in fiscal 2018.
In this rating action, Moody's said it has maintained the negative adjustment for corporate behavior for Yes Bank, which results in a one notch adjustment to the bank's standalone credit profile (the BCA) when compared to the bank's finRead More – Source