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March 06, 2020 location Mumbai

Cascading impact of Yes Bank moratorium

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.

On March 5, 2020, the central government imposed a 30-day moratorium on Yes Bank Ltd under Section 45 of the Banking Regulation Act, 1949. This was based on the Reserve Bank of India’s (RBI) assessment of lack of a credible revival plan by the bank, and in the interest of the public and depositors. During the moratorium that lasts through April 3, 2020, Yes Bank cannot, without written permission from the RBI, pay any depositor or creditor a sum exceeding Rs 50,000. The bank is also restricted from lending activity. 


CRISIL would like to highlight that it has not rated any debt instruments issued by Yes Bank, neither has it rated pass-through certificates (PTCs) backed by loans originated by Yes Bank.


CRISIL believes the imposition of moratorium has material implications for companies that have been availing of various facilities and services from Yes Bank. These include current and savings account deposits, fixed deposits, working capital loan facilities, other loans, liquidity support facilities such as debt service reserve accounts and escrow accounts. There are also non-fund based facilities that companies may have availed of, such as letters of credit and bank guarantees. 


In addition, some companies may also have parked their surplus liquidity with Yes Bank or invested in its bonds. There are also some securitisation transactions of other originators where Yes Bank is a counterparty - either as the bank where credit enhancement in the form of fixed deposits is being maintained, or as the collection and paying agent for the transaction. Yes Bank is also an issuing and paying agent for commercial paper.


With large-sized withdrawals disallowed, a number of companies availing of facilities from Yes Bank could face disruption in their operations, which may constrain their ability to service financial obligations on time.


There could also be a marginal uptick in delinquencies in retail loans of banks and non-banks, specifically because of customers who have linked their repayments to their deposit accounts in Yes Bank.


These challenges, however, are likely to be temporary and more from a liquidity and cash flow perspective than a sudden worsening of the business model or debt protection metrics of the affected companies. Nevertheless, there would be an increase in systemic risk till such time the issues around Yes Bank’s moratorium are resolved.


CRISIL has ratings on bank facilities sanctioned by Yes Bank for 680 companies. In the case of 210 of these companies, Yes Bank’s share exceeds 40% of their aggregate CRISIL-rated bank facilities. CRISIL also has rating on one securitisation transaction where the credit enhancement is placed as a fixed deposit with Yes Bank, and on three securitisation transactions where Yes Bank is the collection and paying agent. 


CRISIL is analysing the credit profiles of its rated companies and transactions that have material banking relationships with Yes Bank. Appropriate rating action will be announced in due course.