Icra places Yes Bank's rating on watch with negative effect over RBI order

YES Bank Photo: Reuters
Rating agency Icra has placed long-term rating for private lender Yes Bank on watch with negative implications. The rating action factors in the Reserve Bank of India's directive to the private bank to appoint a new chief executive to replace existing MD & CEO Rana Kapoor. RBI's order could constrain the lender's ability to raise capital in the near term.  

Yes Bank has an rating outstanding from Icra of “AA+” for Basel-II compliant lower tier-II bonds and infrastructure bonds and an AA rating for Basel-II compliant upper tier-II bonds.

Icra said in a statement that ratings have always factored in the ability of the bank to raise capital as one of its key strengths. The agency will continue to monitor the progress made to appoint a new MD & CEO, outcome of the risk supervision audit by the regulator and capital raising to improve the capital cushion.

RBI had turned down a request by the bank to grant Rana Kapoor another three-year term as MD& CEO, starting September 1. Instead, it allowed him to stay at the helm only till January 2019-end and asked the bank to appoint new CEO from February 2019.

The rating may be downgraded in case RBI's risk-based supervision (RBS) exercise for FY2018 results in any material adverse impact on the bank's asset quality parameters. Further stability in the deposit base will remain a key monitorable. However, the rating may be removed from watch in case the bank is able to maintain asset quality despite RBS outcomes/ ensure continued stability in its depositor base and is able to improve capital buffers.

The bank had a core equity tier-1 (CET-1) capital of 9 per cent as on September 30, as against the regulatory requirements of 8 per cent (including capital conservation buffer of 2.5 per cent) for March 31, 2019. The capital cushion has been weakening vis-a-vis regulatory level.

In this regard, the management has guided for scaling down the growth and increasing loan sell-downs to reduce risk weighted assets and improve capital buffers in the near term, Icra said.

However, the ability of the bank to improve capital cushion by scale down of growth, fresh capital raising amid the impending transitioning to Indian accounting standard (IND-AS) remains to be seen. In the interim, ICRA takes note that there has been no adverse impact on the Bank’s deposit base and liquidity profile of the bank post recent developments, it added.

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