| YES Bank Limited | ||||||
| 'CRISIL BBB/Stable' assigned to debt instruments | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has assigned its 'CRISIL BBB/Stable' rating to the Tier II bonds (under Basel III) of Rs 13,941 crore and infrastructure bonds of Rs 3,780 crore of Yes Bank Limited (Yes Bank), and has reaffirmed its 'CRISIL A2' rating on certificates of deposit. |
| Analytical Approach |
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For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Yes Bank and its subsidiaries, because of the majority shareholding, business and financial linkages, and shared brand. CRISIL has also factored in the expectation of extraordinary systemic support for Yes Bank. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Continued extraordinary systemic support CRISIL's rating centrally factors in the extraordinary systemic support from key stakeholders. All the key stakeholders, including the Ministry of Finance, RBI, and SBI have reiterated in various forums that depositors' money in Yes Bank is safe and they will continue to ensure the safety of deposits through various measures, if required. This systemic support has primarily come in three forms. First, to protect the interests of the public and depositors, RBI and GoI came together to implement the restructuring Scheme within a short time. As part of the Scheme, the RBI appointed an Administrator to oversee its implementation. Furthermore, pursuant to the Scheme, 8 entities, primarily other banks, have infused Rs 10,000 crore equity in the bank, bolstering its capital ratios, which had weakened significantly following the large loss in the third quarter of fiscal 2020 on account of higher provisions. The capital infusion along with write-down of Additional Tier I (ATI) bonds, improved the bank's Common Equity Tier I (CET1) ratio and overall capital adequacy ratio (CAR) to 6.3% and 8.5%, respectively as on March 31, 2020, from 0.6% and 4.1%, respectively, as on December 31, 2019. However, the ratios remain lower than the regulatory requirements. Nevertheless, the bank is in the process of raising additional capital in the near term. This has been factored into the rating and is a key monitorable. Second, systemic support has come in to bolster the bank's liquidity. Key stakeholders are expected to continue to provide liquidity support. Yes Bank has also raised certificates of deposit from various banks which helped it support deposit withdrawals. Refinance from financial institutions is also available if needed. Furthermore, Yes Bank can raise funds through securitisation and inter-bank participation certificates. CRISIL believes Yes Bank will be able to tap these sources if there is further withdrawal of a large quantum of deposits. Third, SBI, the largest bank in India, is taking the lead in supporting Yes Bank in various forms. Over 60% (Rs 6,050 crore) of the equity infusion of Rs 10,000 crore has come from SBI, making it the single largest stakeholder in Yes Bank with a shareholding of 48.21%. SBI is also an investor in Yes Bank's certificates of deposit. Two directors on the board of Yes Bank are from the SBI. Furthermore, SBI has publicly articulated that for the next three years, it will not sell any of its stake in Yes Bank. The rating on Yes Bank reflects this articulated stance of SBI and any change in this will be a key rating sensitivity factor. Weaknesses: * Modest resource profile - ability to limit further deposit outflow and to build a retail liabilities franchise over the medium term needs to be demonstrated Yes Bank has witnessed a steady outflow of deposits in the past few quarters given the challenges faced and the adverse news reports about the bank. Just between December 31, 2019, and March 5, 2020, the deposit base shrunk by around Rs 28,000 crore. Furthermore, after the moratorium, the bank saw deposit withdrawals of around Rs 30,000 crore between March 18 and March 31, 2020. As on March 31, 2020, deposits stood at Rs 105,364 crore. The deposit base has stabilised post March 31, 2020, with the bank's increased efforts to restrict deposit outflow and bring in new depositors. Total deposits as on May 02, 2020 stood at Rs 102,717 crore. Building back the liability franchise is the top priority of the management and the bank has taken various steps and initiatives in this regard. The bank has initiated a new campaign with 'Safety First' tagline and has moved away from the interest rate campaigns with the overall strategy focussed on acquiring new customers, retaining existing clients, and winning back lost customers. It has been in touch with existing depositors to address concerns, and key stakeholders have provided public assurances regarding the safety of deposits in Yes Bank. However, deposits tend to be highly confidence-sensitive. Given the recent events, it remains to be seen if there will be any further deposit withdrawal in the near future. Nevertheless, liquidity support measures mitigate the risk. The extent of any further withdrawal will be a key monitorable. The ability of the bank to not only limit the decline in deposits, but also build a retail liabilities franchise thereon on a steady state basis will be a critical determinant in building a stable business model. * Weak asset quality, impacting profitability The bank witnessed a sharp increase in slippages in the second half of fiscal 2020, largely stemming from challenges in the corporate loan book. This led to a significant increase in gross NPAs to 16.8% as on March 31, 2020, from 7.4% as on September 30, 2019 (3.2% as on March 31, 2019). While it declined from 18.9% as on December 31, 2019, this was primarily due to write-offs. As a result and because of the associated provisioning cost, Yes Bank reported a large loss of Rs 22,715 crore (excluding the extraordinary profit from the write down of Tier-I bonds) for fiscal 2020. The Special Mention Account -1 (SMA-1) and SMA-2 portfolio totalled around Rs 11,100 crore as on March 31, 2020, which was almost 6.4% of net advances. Any further material slippage, particularly given the challenging macroeconomic environment amid the Covid-19 outbreak, can potentially impact the bank's earnings, and thereby, its capital position. The bank plans to focus on granular retail asset segments. Over the medium term, the share of the retail portfolio is targeted to increase to around two-thirds of the portfolio. However, given the intense competition, ability to scale up this book while maintaining asset quality and profitability needs to be seen. Build-up of a sound operating model and strengthening of governance and compliance framework will also be critical for the long-term success of the bank and will be key rating monitorables. |
| Liquidity Adequate |
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Liquidity coverage ratio was 40.0% as on March 31, 2020, against the then regulatory requirement of 100%. Nevertheless, the regulator and SBI, the largest shareholder, continues to support the bank with liquidity in various forms. |
| Outlook: Stable |
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CRISIL believes Yes Bank will continue to receive extraordinary systemic support over the medium term. |
| Rating Sensitivity factors |
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Upward factors: * Stability in deposit base, with no material reduction from current levels * Improvement in asset quality and profitability Downward factors: * Any change in expectation of systemic support from key stakeholders, including RBI, or material decline in SBI's ownership * Significant contraction in deposit base over a prolonged period * Capital adequacy ratios remaining below minimum regulatory requirements over an extended period of time * Any adverse observations by investigative agencies or regulators |
| About the Bank |
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Set up in 2004, Yes Bank is a private sector bank with total assets of Rs 2,57,827 crore, total advances of Rs 1,71,443 crore, and a network of 1,135 branches as on March 31, 2020. |
| Key Financial Indicators (Standalone) | ||||||||||||||||||||||||||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - List of entities consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Links to related criteria |
| Rating Criteria for Finance Companies |
| CRISILs Criteria for Consolidation |
| CRISILs Criteria for rating short term debt |
| For further information contact: | ||||||
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