It has also changed the rating outlook of Yes Bank from ‘positive’ to ‘stable’ and has also adjusted the baseline credit assessment (BCA) from ‘b1’ to ‘b3’.
Moody’s Investors Service said, “The upgrade of Yes Bank’s BCA and rating reflects the bank’s planned equity capital growth, which will support its credit profile and protect against potential asset quality risks arising from headwinds such as high inflation and tighter global financial conditions.” will strengthen its resilience.” in a release.
On July 29, Mumbai-headquartered Yes Bank announced to raise around Rs 8,900 crore (about USD 1.1 billion) through a mix of shares and warrants to be issued to global private equity players Carlyle Group and Advent International.
On the rationale behind the rating upgrade, it said the ‘stable’ rating outlook reflects a gradual “Moody’s expectation that the bank’s credit profile will improve”.
It will take time for the bank to establish its competitive strength.
As part of the capital raising plan, each of these two investors will acquire up to 10 per cent stake in the bank.
The capital raising involves two parts – Rs 5,100 crore (USD 640 million) in equity shares and Rs 3,800 crore (USD 475 million) through equity share warrants which can be exercised only after April 1, 2023.
“Moody’s estimates that the Bank’s Consolidated Common Equity Tier 1 (CET1) ratio will increase by 2.2 percentage points by the end of June 2022, after including profit for June as a result of the first part of the capital increase. 11.9 per cent by the end of the quarter. The second half of the capital increase will add 1.6 percentage points.”
On the other hand, Moody’s said that given the stable outlook, the bank’s rating is unlikely to be upgraded in the next 12-18 months.
“Nevertheless, Moody’s may upgrade the rating and BCA if the bank establishes a credible and sustainable strategy to improve profitability, without compromising on its asset quality and capital.”
Global Rater said it would take a turnaround if there was a significant deterioration in its asset quality, which could lead to erosion of profitability and capital, or even if the bank’s turnaround fails due to an aggressive financial strategy. Can downgrade the rating on the lender. risk management.
“Notably, the risk of weighted assets below 6 per cent in total common equity and fall in net income/tangible assets below 0.5 per cent will put negative pressure on BCA. Any dilution in funding and liquidity of Yes Bank will also be negative. ,” Moody’s added.
Yes Bank had to give bail in March 2020 after coordinated action by the government reserve Bank of India — and led by eight lenders
Rs 10,000 crore capital infused into the bank as part of Yes Bank Limited Reconstruction Scheme2020.
The lender has now come out of the reconstruction scheme and has posted full year profit in the financial year ending March 2022.