Credit rating agencies swing into action to avoid another IL&FS imbroglio2 min read . Updated: 13 Mar 2020, 12:22 AM IST
- Yes Bank is the lead banker in nearly 67% of all infrastructure projects where IL&FS has banking relationships
- Sebi had earlier pulled up rating companies for failing to warn bond investors in time about the scam at IL&FS
Rating agencies are assessing the likely impact of the Yes Bank collapse on Indian companies to avoid the kind of steep and abrupt downgrades that followed the implosion of Infrastructure Leasing and Financial Services Ltd (IL&FS).
India Ratings and Research Pvt. Ltd in a report about Yes Bank on Thursday said, “Around 25-30 of the rated issuers have significant dependency on the bank for available limits or liquidity cover or ensuring business-as-usual operations."
A Crisil communication reviewed by Mint, referring to the Reserve Bank of India’s moratorium on capital-starved Yes Bank, stated, “This has material implications for companies that have been availing of various services from Yes Bank. In light of the same, we would request you to share details of services that your company is availing from Yes Bank." The Securities and Exchange Board of India (Sebi) had earlier pulled up rating companies for failing to warn bond investors in time about the scam at the shadow lender IL&FS. The situation assumes importance given that Yes Bank is the lead banker in nearly 67% of all infrastructure projects where it has banking relationships.
As on 30 September, Yes Bank’s loan book had a 6.7% exposure to the electricity sector and 10.6% to the engineering, procurement and construction (EPC) sector.
The Crisil communication cited above sought details related to “working capital facilities, current account, fixed deposits, commercial papers, liquidity support facilities such as debt service reserve accounts, escrow accounts, surplus cash deposits, supplier payments using non-fund based facilities such as letters of credit, etc."
A Crisil spokesperson declined to comment.
On 6 March, Mint reported about problems being faced by India’s clean energy sector given that Yes Bank was one of the largest lenders to India’s clean energy space and the problems related to escrow accounts, bank guarantees and letters of credit.
“However, delays in resuming normal services could impact the near-term liquidity of some of the bank’s customers. Also, corporate groups with a large dependency on the bank could face a longer period of disruption. These disruptions could stem from their usage of Yes Bank as a lender for facilities such as cash credit, letters of credit (LCs), bank guarantees (BGs) and other working capital facilities as well as a term debt provider," the India Ratings report added.
This comes at a time of concerns over India’s economic growth against the backdrop of the virus pandemic. Ratings agency Moody’s Investors Service revised its baseline growth projections for India from 5.4% to 5.3% in 2020, saying an extensive and prolonged slump as a result of the coronavirus outbreak will reduce growth in Asia’s third-largest economy to 5% during the calendar year.
“Companies sitting on a weak liquidity buffer along with large dependence on Yes Bank for fund-based working capital lines are likely to face near-term liquidity challenges. On the non-fund facilities, issuers having LC lines with the bank may not be able to procure raw materials using them as fresh LCs of Yes Bank may not be acceptable to suppliers. A similar situation may arise for BGs as well," the India Ratings report said.
As per information collated by Mint research, Yes Bank’s loan exposure to India’s clean energy sector is expected to be to the tune of ₹12,000 crore.