Moody’s warns of downgrading YES Bank

Global rating agency Moody's has placed private sector lender Yes Bank's ratings under review for a possible downgrade citing its high exposure to the struggling NBFC and realty sectors.

The agency has a "Ba1" rating on the lender, which has a 6.4 per cent exposure to NBFCs and housing finance firms and 7 per cent to realty companies as of the March 2019 quarter.

"The ongoing liquidity pressures on finance companies will negatively impact the credit profile of Yes Bank, given its sizeable exposure to weaker companies in the sector," a Moody's note said Tuesday.

The report said the bank has a 6.4 per cent exposure to non-banking finance companies and housing finance companies as of March 2019, while the same to commercial and residential real estate sector was 7 per cent.

Moody's further said the realty sector is also under pressure just like NBFCs whose "liquidity condition have worsened" since last September.

The bank, which reported a maiden loss of over Rs 1,500 crore for the March quarter under a new head, had classified as much as Rs 10,000 crore of its exposure under a watch-list which could turn sour this fiscal.

The agency "expects significant pressure on the bank's asset quality and therefore 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.

However, it warned that if the bank is not able to raise capital - it has a board approval to raise USD 1 billion--its loss-absorbing capacity and financial profile will be under more pressure.

Commenting on instances like under-reporting of bad loans, the agency said recent management changes at the bank can lead to gradual improvement.

A sustained deterioration in impaired loans or loan- -loss reserves, jump in NPAs and decline in capital ratios-- can lead to a downgrade, the agency warned and said an upgrade is unlikely for the next 18 months, but a change in outlook to "stable" is possible if it maintains current asset quality profile with adequate provisions and strengthens its loss-absorbing buffers by raising equity capital.

The Yes Bank scrip gained 2.50 per cent at 139.30 on the BSE, as against 0.42 per cent gain on the benchmark.