Moody's expects Yes Bank's common equity tier-1 (CET1) ratio of 8.7 per cent at the end of September 2019 to come under significant pressure, unless the bank can raise new capital in the next few quarters.
“The negative outlook primarily reflects the risk of further deterioration in the bank's solvency, funding or liquidity, if the bank is unable to recapitalize itself within the next few quarters,” Moody’s said in a statement.
With today’s fall, the share price of YES Bank
has declined 16 per cent in the past six trading days, after the bank, on November 29, said it had received offers from a number of financial investors to invest up to $2 billion through new equity capital into the bank.
Last week, YES Bank
increased the size of its equity capital offer to $2 billion from the earlier guidance of $1.2 billion on “strong interest” shown by NRI investors, including a $1.2 billion offer by Erwin Singh Braich and SPGP Holdings, and $500 million by Citax Holdings and Citax Investment Group.
Nevertheless, Moody's noted that there are significant execution risks around the timing, price and regulatory approvals required.
The rating agency expects that the Indian authorities will strive to maintain systemic stability and help prevent any weakness in the bank's standalone credit profile from significantly affecting depositors and creditors. The support assumption also takes into account the bank's modest, but increased franchise and relative importance to India's banking system.