Mumbai: India Ratings and Research (Ind-Ra) has upgraded Yes Bank’s long-term issuer rating to ‘IND A’ from ‘IND A-’, with a stable outlook. The upgrade reflects the bank’s improved asset quality, reduced provisioning needs for legacy stressed assets, enhanced deposit profile, and competitive position in the post-COVID-19 environment.
The bank’s non-performing asset (NPA) portfolio, special mention accounts (SMA), and stressed corporate exposures notably decreased. Upgrades and recoveries contributed to enhancing the overall quality of its assets.
Also, the lender increased its deposits to Rs 2.17 lakh crore in FY23, underpinned by stable current account and savings account (CASA) levels. The bank employed strategies like new customer acquisition, digital payment capabilities, and improved performance evaluations to boost its deposit profile. A decline in concentration and increased granular traction further strengthened its deposit base.
As a result, the bank’s short-term asset-liability maturity gap improved, and its liquidity coverage ratio stood at 127% in 1QFY24.
According to India Ratings, which is an affiliate of Fitch, Yes Bank’s capital to risk (weighted) assets ratio (CRAR) of 18.3% and Tier 1 capital of 13.6% (end-1QFY24) are adequate for growth plans. India Ratings said that the bank’s ability to manage legal proceedings on its Additional Tier 1 bonds and to raise capital would be a key factor in its rating.
The rating agency also highlighted the challenges faced by the bank, which include the impending legal proceedings on the AT1 bonus, which could limit the bank’s growth capital if the Supreme Court overturns the decision to write off those quasi-equity bonds at the time of the bank’s restructuring in 2020.
The bank has yet to develop its deposit franchise fully, and rising deposit costs could pressure its margins. According to the rating agency, banks with ratings in the lower end of the Ind A category have historically shown greater volatility, capital levels, and profits.
