India Ratings and Research (Ind-Ra), a part of Fitch group, on Wednesday downgraded YES Bank's long-term issuer rating to 'IND A-' from 'IND A', while maintaining it on 'Rating Watch Negative' (RWN). The rating downgrade was attributed to continued delay and inconclusive quantum of the anticipated equity infusion in YES Bank.
Ind-Ra opined that the delay in capital infusion could adversely impact the bank's franchise and potentially create challenges on asset and liability side. The bank has sizable foreign currency liabilities and institutional deposits.
"This rating action is a follow up of the rating rationale published by the agency on January 28, 2020, where the agency had stated that the rating would be reviewed in February 2020," Ind-Ra said in a report.
The cash-strapped bank continues to remain in discussions with various potential investors, but has failed to reach a conclusive outcome. In December, YES Bank in a filing to the bourses disclosed that its board was willing to favourably consider London-based Citax Holdings' $500 million offer, adding that it would continue to evaluate other potential investors to raise capital upto $2 billion. Among others who showed willingness for fund infusion were US-based Capital International ($120 million), GMR Group and Associates ($50 million), billionaire investor Rakesh Jhunjhunwala's wife Rekha Jhunjhunwala ($25 million) and Aditya Birla Family Office ($25 million).
Last month, YES Bank rejected $1.2 billion investment offer made by Canadian industrialist Erwin Singh Braich/SPGP Holdings.
According to Ind-Ra, the capital infusion is critical for providing sufficient cushion to the possible credit cost impact from the stressed asset pool on regulatory capital requirement in the short and medium-term, as well as for the bank's ability to continue to serve its customers adequately.
Although the liquidity position of the YES Bank seemed adequate at end-September 2019 (liquidity coverage ratio of 114 per cent), but in the absence of any swift capital raise, the bank's ability to manage its asset and liability maturities could get tested further, the report said.
Ind-Ra said that raising sizeable capital in the very near term could be challenging and could require various regulatory and other approvals. The rating could be reviewed towards the end of February 2020.
For rating AT1 instruments, Ind-Ra considered the discretionary component, coupon omission risk, and write-down/conversion risk as the key parameters. The agency has recognised the unique going concern loss absorption features of these bonds and differentiated them from the bank's senior debt (by three notches in this case). Ind-Ra envisages coupon deferrals and principal write-down risk as a modest possibility in view of YES Bank's revenue reserve buffers.
Last week, YES Bank received shareholders' nod to raise capital up to Rs 10,000 crore via issuance of equity shares or other convertible securities. At the Extraordinary General Meeting, the lender also received approval to increase authorised share capital of the bank to Rs 1,100 crore from Rs 800 crore.
By Chitranjan Kumar