Icra places YES Bank rating on watch

Rating agency Icra has placed long-term rating for private lender YES Bank on watch, with negative implications. This factors in the Reserve Bank of India (RBI) directive to the bank to replace current Managing Director (MD) and Chief Executive Officer (CEO) Rana Kapoor by January next year, affecting its ability to raise capital in the near term.

Icra has rated Basel II-complaint lower tier-II and infrastructure bonds as “AA+” and Basel II-compliant upper tierII bonds as “AA”.

In a statement, the rating agency said it considers the ability of a bank to raise capital as a key factor. The agency will continue to monitor the progress made to appoint a new MD & CEO, outcomes of the risk-supervision audit by the regulator, and how well it can raise capital.

The RBI turned down a request of the bank to extend Kapoor’s term for three more years from September 1 this year. Instead it allowed him to stay till January next year and asked the bank to find his replacement by February.

Rating may be downgraded in case the risk-based supervision (RBS) exercise of the RBI for FY18 results in any material adverse impact on asset-quality parameters of the bank.

Stability in the deposit base will remain a key factor. However, the rating may be removed from “watch”, in case the bank is able to maintain asset quality despite the RBS outcomes or ensures continued stability in its depositor base, and is able to improve capital buffers.

The bank reported core equity tier-1 (CET-1) capital of 9 per cent as of September 30, against regulatory requirement of 8 per cent (including capital conservation buffer of 2.5 per cent) for March 31, 2019.

The ability of the bank to improve capital cushion by scaling down growth, fresh capital raising amid the impending transitioning to IND-AS remains to be seen. In the interim, Icra has taken note that there has been no adverse impact on the bank’s deposit base and liquidity profile.