Moody's, the global rating agency, upgraded Yes Bank's rating on Friday. The long-term foreign currency and local currency deposit ratings were raised from Ba3 to Ba2.
New Delhi: Global rating agency Moody's upgraded Yes Bank's rating on Friday, signaling a ber financial position and improved asset quality. Moody's raised the bank's long-term foreign and local currency deposit ratings one notch higher, from Ba3 to Ba2. Simultaneously, the baseline credit assessment (BCA) was also upgraded from b1 to ba3. Let's examine the key reasons behind this upgrade and its potential impact.
Improved Asset Quality, Decline in NPL Ratio
The most significant positive development is the improvement in Yes Bank's asset quality. By March 2025, the bank's gross non-performing loan (NPL) ratio decreased to a mere 1.6 percent, down from 13.9 percent in March 2022. This improvement is attributed to fundamental economic balance and multifaceted financial reforms. Adequate provision coverage also played a crucial role in strengthening the bank: the NPL coverage ratio increased from 71 percent to 80 percent. Moody's acknowledged that these improvements significantly contributed to shielding Yes Bank from unexpected asset risks.
Improved Capital Position and Profitability
Moody's review also highlighted the gradual improvement in Yes Bank's capital position and profitability. The bank has consistently shown profits, and its capital structure has strengthened. Recently, Yes Bank's board approved raising ₹16,000 crore through a mix of equity and debt.
This robust capital position and improved loan coverage have facilitated credit accessibility, a positive sign noted by Moody's.
Moody's Underlying Outlook and Structural Changes
Moody's upgraded Yes Bank's BCA (ba3) by one level, confirming the bank's potential for moderate support from the Indian government in the future (Baa3 stable). The Ba2 deposit rating indicates that the bank can recover responsibly from any extraordinary situations through its retail and small industry funding capabilities.
Potential Risks and Challenges
- While the rating outlook is positive, Moody's expressed concerns about some key risks.
- The bank's rapid expansion in retail lending and the SME (small and medium enterprise) sector could increase operational demands.
- Unexpected risks associated with reliance on third-party sourcing channels may also increase.
Moody's cautioned that the bank must continuously manage these risks.
What Does This Update Mean for Investors?
The upgrade in Yes Bank's rating will boost investor confidence and increase the likelihood of new capital investments. The targeted capital infusion and improved capital structure are expected to elicit a positive response in the bank's stock value.
The ₹16,000 crore fund-raising plan will provide the bank with substantial resources for future plans, potentially enhancing its market competitiveness.
