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Business News/ Industry / Banking/  Moody’s downgrades Yes Bank rating, changes outlook to negative
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Moody’s downgrades Yes Bank rating, changes outlook to negative

Moody's has cited corporate governance concerns and impact of leadership change on Yes Bank's growth plan as reasons for the rating downgrade

Following the ratings downgrade by Moody’s, shares of Yes Bank on Tuesday lost 2.55% to close at ₹183.15 on BSE. Photo: MintPremium
Following the ratings downgrade by Moody’s, shares of Yes Bank on Tuesday lost 2.55% to close at ₹183.15 on BSE. Photo: Mint

Mumbai: In what could spell more trouble for Yes Bank Ltd, Moody’s Investors Service on Tuesday downgraded the rating of the bank citing corporate governance concerns and impact of leadership change on the bank’s growth plan. The global rating agency lowered Yes Bank’s foreign and local currency bank deposit ratings to Ba1 from Baa3. It also downgraded Yes Bank’s baseline credit assessment (BCA) to Ba2 from Ba1.

Moody’s also downgraded the foreign currency senior unsecured medium-term note (MTN) programme rating and senior unsecured debt rating.

The rating action considers the resignation of members of the bank’s board and the Reserve Bank of India’s (RBI’s) September directive to restrict the term of the bank’s founder and managing director Rana Kapoor, Moody’s said. This has raised concerns over corporate governance, the rating company said.

On Wednesday, the Press of India reported the sparring promoters of Yes Bank are inching towards a truce, but there was no clarity on the exact status of the talks with one camp claiming it’s at an advanced stage and the other being not on the same page.

Moody’s also changed the outlook to negative from stable. However, it affirmed the bank’s counterparty risk assessment and domestic and foreign currency counter-party risk rating.

“In Moody’s opinion, although the bank’s reported credit fundamentals remain stable, the developments surrounding the transition in leadership as well as the governance issues are credit negative because they complicate management’s effective implementation of the bank’s long-term strategy. Furthermore, these developments could constrain the bank’s ability to raise new capital," it said.

The revision in rating follows the resignation of three board members of Yes Bank in quick succession. R. Chandrashekhar, one of the board members, even expressed his displeasure over recent events at the bank and disappointment at the manner in which the lender handled them. Yes Bank is currently in the midst of a management change after RBI cut short the tenure of Kapoor as the chief executive officer.

Separately, Mint had reported on Monday that RBI is inspecting Yes Bank’s exposure to Infrastructure Leasing and Housing Finance Ltd, Dewan Housing Finance Corp. Ltd (DHFL), Indiabulls Group and Sudhir Valia-promoted entities. The inspection is to ascertain whether there is any link between the bank and non-banking finance companies (NBFCs) in the backdrop of the Infrastructure Leasing and Housing Finance Ltd crisis.

Moody’s also highlighted the divergence in Yes Bank’s reported asset quality compared with the RBI’s assessment of asset quality in the two fiscal years ended March 2017 and 2016.

“While its current asset quality metrics are superior to those of its Indian peers, its aggressive growth strategy poses asset risks," the ratings agency noted.

Following the report, shares of Yes Bank lost 2.55% to close at 183.15 apiece on BSE, while the benchmark Sensex gained 0.45% to close at 35513.14 points.

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Gopika Gopakumar
Gopika Gopakumar has worked for over 15 years as a banking journalist across print and television media. Her expertise lies in breaking big corporate stories and producing news based TV shows. She was part of the 2013 IMF Journalism Fellowship Program where she covered the Annual & Spring meetings of the International Monetary Fund in Washington D.C. She started her career with CNBC-TV18, where she also produced a news feature show called Indianomics and an award winning show on business stories from South India called Up South. She joined Mint in 2016.
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Published: 27 Nov 2018, 04:54 PM IST
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