Yes Bank raised Rs 1,930 crore in new capital via a qualified institutional placement on August 14

Moody's Investors Service on Wednesday 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 adjusted baseline credit assessment (BCA) to "b1" from "ba2".

"The outlook on the bank's ratings where applicable is negative. Today's rating action concludes the review for downgrade initiated on June 11," said Moody's.

The downgrade of Yes Bank's ratings takes into account lower-than-expected amount of capital raised by the lender recently, and the risk that the substantial decline in its share price will challenge its ability to raise sufficient capital to maintain the rating at its previous level.

On August 14, Yes Bank raised Rs 1,930 crore in new capital via a qualified institutional placement (QIP). On a pro-forma basis, the QIP will moderately improve the bank's reported common equity Tier 1 (CET1) ratio as of June 30 to 8.6 per cent from 8 per cent.

Furthermore, Moody's expects the bulk of Yes Bank's operating profits will get consumed by loan loss provisions over the next 12 to 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.

Yes Bank's asset quality deteriorated in the quarter ended June 2019 with its gross non-performing loan (NPL) ratio rising to 5 per cent from 3.2 per cent at the end of March 2019.

As of the same date, about Rs 10,000 crore of loans -- or about 4 per cent of Yes Bank's total loans -- remain on a watchlist, meaning the company expects these watchlist loans may translate into NPLs over the next two to three quarters.

In addition, about Rs 7,500 crore of bond investments -- or 10 per cent of its total investment holdings -- have experienced rating downgrades in the past quarters.

"Although the bank's funding and liquidity profile have remained broadly stable, it compares weakly to other rated private sector peers in India."

Moody's maintains a negative adjustment for corporate behaviour in Yes Bank's BCA, which results in a one-notch negative adjustment to the bank's BCA when compared to its financial profile.

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 to 18 months, said Moody's.