Yes Bank close to its low

Yesterday rating agency Moody’s downgraded Yes Bank’s long-term foreign-currency issuer rating to Ba3 from Ba1.

Moody's has also downgraded the bank's long term foreign and local currency bank deposit ratings to Ba3 from Ba1, foreign currency senior unsecured MTN program rating to (P)Ba3 from (P)Ba1, and Baseline Credit Assessment (BCA) and adjusted BCA to b1 from ba2.

The outlook on the bank's ratings is negative. Explaining the rationale behind this downgrade, Moody’s said it has taken into account: (1) the lower than expected amount of capital raised by the bank recently; and (2) the risk that the substantial decline in the bank's share price will challenge its ability to raise sufficient capital to maintain the rating at its previous level.

Moody's expects the bulk of Yes Bank's operating profits will get consumed by loan loss provisions over the next 12-18 months, and thus not support internal capital generation. This will leave the bank dependent on external capital raising to improve its loss-absorbing buffers, which in Moody's opinion is becoming more challenging given the substantial decline in its share price.

The negative outlook primarily reflects the risk of further deterioration in the bank's solvency, funding or liquidity, as the bank continues to work through the asset quality issues and rebuilds its loss absorbing buffers. Given the negative outlook, an upgrade is unlikely over the next 12-18 months.

This news has obviously not gone down well and Yes Bank is among the top losers on the BSE. It hit an intraday low at Rs.55.20, down almost 7.5% and not too far from its 52-week low at Rs.53.15.