Moody's Places Yes Bank Ratings Under Review For A Downgrade

In a further setback to YES Bank, Moody’s placed its ratings under review for a downgrade. In a separate development, non-executive independent director Mukesh Sabharwal has resigned from the bank’s board.

Meanwhile, the RBI said it has imposed a penalty of ₹11.25 lakh on the private sector lender for non-compliance with prepaid payment instrument norms.

Annual general meeting

These developments come a day ahead of YES Bank’s annual general meeting. Global ratings agency Moody’s raised concerns over the high exposure of the private sector lender to the struggling NBFC and real estate sectors.

“The review for downgrade takes into account Moody’s expectation that the ongoing liquidity pressures on Indian finance companies will negatively impact the credit profile of YES Bank, given the bank’s sizeable exposure to weaker companies in the sector,” the agency said in a statement on Tuesday.

At the end of March 2019, YES Bank’s exposure to housing finance companies and NBFCs represented 6.4 per cent of its total exposure, and it had a 7 per cent direct exposure to the commercial and residential real estate sector at the time, it further noted, adding that both the sectors are under pressure due to tight liquidity conditions.

The bank, under its new Managing Director and CEO Ravneet Gill, had reported a net loss of ₹1,507 crore in the quarter ended March 31, 2019, and had classified ₹10,000 crore of its total loans under a watchlist, which could turn non-performing over the next 12 months.

Also read: India Ratings downgrades Yes Bank with negative outlook

Moody’s said it expects significant pressure on the bank’s asset quality, profitability and capital position due to these headwinds, but said the proactive provisioning in the March quarter will cushion the impact of the anticipated stress.

It also warned that YES Bank’s loss-absorbing capacity and financial profile will be under more pressure if it is unable to raise the board-approved capital of $1 billion.

“In Moody’s opinion, given the recent changes at the bank, its corporate behaviour can gradually improve,” it said, noting that its negative adjustment takes into account the management’s aggressive loan growth strategy and identification of lapses by the Reserve Bank of India.

Sabharwal resignation

Meanwhile, in a regulatory filing on the stock exchanges, YES Bank said that its non-executive independent director Mukesh Sabharwal has resigned from the board as “he wants to devote quality time on his academic pursuits”.

This is the second such resignation from the bank’s board in recent days. On Monday, the lender said that Ajai Kumar, a non-executive non-independent director, had resigned with immediate effect due to personal reasons.

Sabharwal was appointed as independent director and has spent over seven years with YES Bank since April 25, 2012. The bank has proposed his re-appointment as independent director until April 24, 2020, which will also be taken up at the AGM.

Analysts are once again concerned after the latest developments at the bank.

Lalitabh Shrivastawa, AVP, Research, Sharekhan by BNP Paribas, said: “The recent resignation of board members of YES Bank adds to the growing number of board member exits seen since last year. Coupled with the recent rating downgrades, we believe it is an overhang on the stock performance. We opine it is a concern.”

The lender’s scrip gained 2.5 per cent and closed at ₹139.30 apiece on the BSE.