Yes Bank's net profit declined 91 per cent year-on-year in June quarter

ICRA has downgraded Yes Bank's long-term ratings on various bonds while retaining a negative outlook.

The rating for the Basel III compliant AT-I bonds is three notches lower than the rating for the Basel III compliant Tier II bonds of Yes Bank as these instruments have loss-absorption features that make them riskier.

Coupon payments are non-cumulative and discretionary, and the bank has full discretion at all times to cancel the coupon payments. The cancellation of discretionary payments will not be an event of default. And the coupons can be paid out of the current year's profits.

"However, if the current year's profit is not sufficient or if the payment of the coupon is likely to result in a loss, the coupon payment can be made through the reserves and surpluses created through the appropriation of profits (including statutory reserves) 1, said ICRA.

The coupon payment is subject to the bank meeting the minimum regulatory requirements for common equity tier I (CET-I), Tier I and total capital ratios (including capital conservation buffer, CCB) at all times as prescribed by the Reserve Bank of India (RBI) under Basel III regulations.

These AT-I bonds are expected to absorb losses through a write-down mechanism at the objective pre-specified trigger point fixed at the bank's CET-I ratio as prescribed by the RBI, 5.5 per cent till March 2020, and thereafter 6.125 per cent of the total risk-weighted assets (RWAs) of the bank or when the point of non-viability trigger is breached in the RBI's opinion.

Further, said ICRA, the bank's net profit declined 91 per cent year-on-year which was below consensus estimates primarily driven by higher provisioning and weak revenue growth. Net interest income growth was extremely weak, primarily owing to a slowdown in loan growth and a sharp sequential contraction in margins.

Yes Bank's gross non-performing advances (GNPAs) as well as BB and below rated exposures increased to Rs 41,558 crore as on June 30 from Rs 30,772 crore as on March 31. After the provisions made on these exposures, the net BB and below rated exposures and net NPAs (NNPAs) were Rs 34,082 crore as on June 30 compared to Rs 24,741 crore as on March 31.

"With the increased stressed portfolio, the credit provisioning is expected to remain high, translating into a moderation in the earnings profile in the near term. Any normalisation thereafter will be driven by the resolution of stressed advances," said ICRA.

"Given the sizeable stressed exposure in relation to the equity capital, the accelerated resolution of these exposures will remain a key rating sensitivity. The inability to reduce the stressed exposure book or a further increase in the same will remain a rating negative," it said in a statement late on Wednesday.