Moody's upgrades Yes Bank to B3 following capital raise; outlook stable

Yes Bank's follow-on public offer (FPO) was overall subscribed 95 percent at Rs 14,266.97 crore.

Given the improved solvency, Moody's has upgraded Yes Bank's BCA to Caa2 from Ca. The bank's B3 issuer rating is two notches above the bank's Caa2 BCA, reflecting Moody's expectation of a high level of support from the Indian government, in times of need.

Following the capital increase, the bank's Common Equity Tier 1 ratio will more than double to 13.4 percent from 6.6 percent based on the bank's capital position at the end of June 2020, bringing its capitalisation largely in line with its private sector peers.

“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 India's economy,” the ratings agency said.

Yes Bank continues to benefit from liquidity support of around Rs 25,000 crore from 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 RBI.

Moody's expects that as the bank's operations normalise the extraordinary government support will reduce.

Despite the improvement in Yes Bank’s deposits base, Moody's expects that it will be challenging for the bank to restore its low-cost current and savings account (CASA) deposits to pre-March 2020 rescue levels.

Further, the improvement in the bank's liquidity coverage ratio (LCR) to 114 percent as of June 30, 2020, was partially driven by the liquidity support from the RBI.

However, Moody’s raised concerns over the risk of a further deterioration in asset quality in light of the ongoing economic disruption caused by the coronavirus outbreak.