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March 16, 2020 location Mumbai

Cascading impact of Yes Bank moratorium: An update

A credit alert is CRISIL’s opinion on a sharp and specific development. It conveys that CRISIL will revert shortly on the impact of the development on the ratings of those affected.

CRISIL is in discussions with, and analysing, its rated companies that have a material banking relationship with Yes Bank. This follows its credit alert titled ‘Cascading impact of Yes Bank moratorium’ published on March 6, 2020. While the moratorium is expected to be lifted on March 18, 2020 at 6 pm, in the interim, it has potential to disrupt routine functioning of some companies.


The moratorium would pose challenges to companies that have cash credit facilities and current accounts with Yes Bank. The ensuing financial stress can impact their ability to service financial obligations on time in spite of sufficient liquidity. Some other challenges are:


Fixed deposit (FD) locked in Yes Bank
Such deposits were meant to be used for capex, routine operations, service maturing letter of credit (LC) and meet term-loan obligations. Because of the moratorium, borrowers can face unexpected disruptions.


Electronic clearing service mandate given to Yes Bank
Borrowers had authorised other banks to service maturing obligations on loans they had availed of from Yes Bank. But because of the moratorium, other banks are unable to remit monies to the Yes Bank accounts of such borrowers.


While CRISIL usually considers the first instance of missed payment on a debt instrument or loan facility as default1, we do not consider missed payments as default if they stem from non-credit reasons attributable to operational issues or administrative errors.


Companies having material banking relationship with Yes Bank could face financial stress, which does not reflect their inability or unwillingness to meet obligations.


CRISIL views these as operational challenges on account of the unanticipated and unprecedented moratorium. These challenges have arisen because of events beyond the control of the entity.


Therefore, CRISIL may place the ratings of such companies on Rating Watch with Developing Implications, and monitor developments and credits closely until operations normalise at Yes Bank. If it takes longer for normalcy to be restored, there could be an impact on the credit profiles of some borrowers.


1 Detailed criteria can be found at-