Shares of embattled private sector lender YES Bank sharply declined 10% to close at ₹56 per share on the S&P BSE Sensex after global ratings agency Moody's downgraded the Ravneet Gill-led bank's credit ratings. Moody's was also negative on its outlook for the company mainly due to the bank's high level of stressed assets and weak capital base to cushion the impact of further deterioration in asset quality.
"The downgrade of YES Bank's deposit and senior unsecured program ratings to B2 from Ba3 and (P)B2 from (P)Ba3 takes into account Moody's expectation that the bank's pool of potential stressed assets and low loss absorbing buffers against those assets — will add pressure to its funding and liquidity, creating additional risks to its standalone credit profile or BCA," Moody's said in a statement.
Moody's said it expects YES Bank's common equity tier 1 (CET1) ratio of 8.7% at the end of September 2019 to come under significant pressure, unless the bank can raise new capital in the next few quarters. "The rating actions reflect Moody's view that YES Bank's funding and liquidity compares weakly to other rated private sector peers in India, and could come under pressure, if the bank cannot strengthen its solvency in the next few quarters," it added.
The bank has informed investors of bids received from a clutch of investors to the tune of $2 billion. "Moody's notes that YES Bank has received offers from a number of financial investors to invest up to $2.0 billion through new equity capital into the bank. Nevertheless, Moody's notes that there are significant execution risks around the timing, price and regulatory approvals required," the ratings agency cautioned.