Moody's Upgrades Yes Bank by a Notch Following Capital Raising, Outlook Stable

Moody's Investors Service on Monday said it has upgraded Yes Bank's long-term foreign currency issuer rating by a notch to 'B3' from 'Caa1' after a Rs 15,000-crore capital raising. Despite the upgrade, Yes Bank still remains under non-investment grade.

Obligations rated 'B' are considered speculative and are subject to high credit risk, while those rated 'Caa' are judged to be speculative of poor standing and are subject to very high credit risk. The outlook on Yes Bank's ratings where applicable is changed to stable from positive, Moody's said in a statement.

"Moody's has also upgraded the bank's long-term foreign and local currency bank deposit ratings to B3 from Caa1, and its foreign currency senior unsecured MTN (medium-term note) programme rating to (P)B3 from (P)Caa1," it said. Giving rationale for rating action, the rating agency said Yes Bank's successful equity capital raise of Rs 15,000 crore (about USD 2 billion) has bolstered its solvency and is the main driver of the ratings upgrade.

The successful equity raising showcases Yes Bank's regained access to external market funds, which is a result of its improving financial strength and will support depositor confidence, it said. "Following the capital increase, the bank's Common Equity Tier-1 ratio will more than double to 13.4 per cent from 6.6 per cent based on the bank's capital position at the end of June 2020, bringing its capitalisation largely in line with its private sector peers," it said.

The significantly improved solvency ratio strengthens the bank's resilience to potential asset quality risks resulting from the ongoing impact of the economic slowdown and coronavirus-related disruptions on the Indian economy, it said. Yes Bank continues to benefit from liquidity support of around Rs 25,000 crore from the Reserve Bank of India (RBI) as of July 28, 2020. In March 2020, the bank had received a total of Rs 50,000 crore in liquidity support from the RBI.

The agency expects that as the bank's operations normalise, the extraordinary government support will reduce, it said. "As a result, Moody's expects to lower support assumption in Yes Bank's rating to moderate from high, as currently assumed, in line with the level assumed for Yes Bank's other Indian peers. A change in the support assumption to moderate may result in a one notch uplift to the bank's ratings," it said.