Moody's upgrade outlook for Yes Bank to "stable"

5 Aug 2022 , 08:06 AM

Following the announcement of Yes Bank’s proposal to raise equity capital last week, Moody’s said on Thursday that it has raised the bank’s rating while changing the outlook to “stable.” The private sector lender’s long-term foreign currency issuer rating and long-term foreign and local currency back deposit ratings have been raised by the global rating agency to “Ba3” from “B2.”

Additionally, it has modified the Baseline Credit Assessment (BCA) to ‘b1’ from ‘b3’ and changed the outlook on Yes Bank’s ratings from ‘positive’ to ‘stable’.

The bank’s planned equity capital raise, which will support its credit profile and strengthen its resilience against potential asset quality risks arising from headwinds like higher inflation and tighter global financial conditions, is reflected in the upgrade of Yes Bank’s BCA and ratings, according to a release from Moody’s Investors Service.

Yes Bank, which has its headquarters in Mumbai, said on July 29 that it would be funding close to Rs8,900 crore (about USD 1.1 billion) by issuing a combination of shares and warrants to global private equity companies Carlyle Group and Advent International.

Regarding the justification for the rating upgrading, it was said that the outlook for a “stable” rating reflects “Moody’s view that the bank’s credit profile will strengthen” gradually.

The global rater stated that it has the ability to lower the lender’s rating in the event of a material decline in asset quality, which could result in a loss of profitability and capital, or even if the bank’s turnaround effort fails as a result of an aggressive financial strategy and risk management.

Following a coordinated effort by the government and RBI, Yes Bank had to be saved in March 2020. As part of the Yes Bank Ltd Reconstruction Scheme, 2020, eight lenders, led by SBI, injected capital into the bank totaling Rs10,000 crore.

The lender exited the Reconstruction Scheme at this point and reported a full-year profit in the fiscal year that concluded in March 2022.