| YES Bank Limited | ||||||
| Ratings upgraded to 'CRISIL BBB+/Stable/CRISIL A1 ' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded the rating on Tier-II bonds (under Basel III) and Infrastructure Bonds of Yes Bank Limited (Yes Bank) to 'CRISIL BBB+/Stable' from 'CRISIL BBB/Stable'. CRISIL Ratings has also upgraded the rating on the Rs 20,000 crore certificates of deposit (CD) of the bank to ‘CRISIL A1’ from ‘CRISIL A2+’.
The upgrade in the rating reflects the greater stability in the bank’s deposit base in the past few quarters post reconstruction of the bank in March 2020, as well as its adequate capitalisation. Yes Bank’s total deposits increased to Rs 1.63 lakh crore as on June 30, 2021 from Rs 1.17 lakh crore as on June 30, 2020 and Rs 1.05 lakh crore as on March 31, 2020. The proportion of, granular and sticky, current account and savings account (CASA) deposits to overall deposits has been on an improving trend and stood at 27.4% as on June 30, 2021 as against 25.8% as on June 30, 2020. Further, the bank’s capital position is adequate, supported by the capital raise of Rs 15,000 crore though a follow-on public offer (FPO) in July 2020. The common equity tier I (CET1) ratio and overall capital adequacy ratio (CAR) stood of 11.6% and 17.9%, respectively, as on June 30, 2021. Bank’s average liquidity coverage ratio (LCR) also remains adequate at 132% for the quarter ended June 30, 2021, as against the minimum regulatory requirement of 100%.
The ratings continue to be underpinned by the expectation of continued extraordinary systemic support from key stakeholders and sizeable ownership by the State Bank of India (SBI).
At the same time, the ability of the bank to continue to build a strong retail liabilities franchise and a stable and sound operating business model with strong compliance and governance framework over the medium term, needs to be demonstrated. Additionally, the bank's asset quality is weak and the impact of the shift in business model to focus on granular retail and micro, small and medium enterprises (MSME) segments and selective working capital loans in the corporate segment will need to be seen over a longer period. These will be key rating monitorables.
In line with Reserve Bank of India’s (RBI’s) measures for Covid-19 pandemic, Yes Bank had given moratorium to its borrowers. While the collection efficiency was impacted during the initial months of the moratorium, collections have gradually improved towards pre-Covid levels. However, the second wave of Covid-19 pandemic resulted in intermittent lockdowns and localised restrictions and led to some delays in collections in April-June 2021 due to impact on the underlying borrower cash flows. Further, in CRISIL Ratings’ opinion, any change in the behaviour of borrowers on payment discipline may affect delinquency levels.
Asset quality of the bank continues to remain weak with elevated gross non-performing assets (GNPA) levels. Its GNPA stood at 15.6% as on June 30, 2021 and 15.4% as on March 31, 2021. However, the same has come down from 16.8% as on March 31, 2020 primarily driven by write-offs. Elevated GNPAs are driven by the GNPAs in the corporate segment, which had a GNPA of 27.1% as on June 30, 2021 and 26.4% as on March 31, 2020. Further, on account of the impact of the pandemic on the economy, the non-corporate segment has also witnessed an inch up in GNPAs to 3.4% as on June 30, 2021 and 3.0% as on March 31, 2021 from 1.5% as on March 31, 2020.
Under the RBI’s August 2020 resolution framework for Covid-19-related stress, as on June 30, 2021, the bank implemented restructuring for 2.0% of its net advances. This is over and above around 1% of net advances restructured under the other restructuring mechanisms such as extension of the date for commencement of commercial operations (DCCO) and restructuring for MSME scheme. Overall restructuring may increase marginally from the current levels under the Resolution Framework 2.0, which has a timeline till September 30, 2021 for invocation.
Given challenges in the macro-environment, ability of the bank to manage collections and asset quality will remain a key monitorable. |
Analytical Approach For arriving at the ratings, CRISIL Ratings 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 Ratings has also factored in the expectation of extraordinary systemic support for Yes Bank.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Yes Bank has adequate capitalisation with CET 1, Tier 1 and overall CAR of 11.6%, 11.6% and 17.9%, respectively, as on June 30, 2021. Capital position of the bank had improved after the capital raise of Rs 15,000 crore via an FPO in July 2020. Previously, capital of Rs 10,000 crore was also infused by different financial institutions as part of its reconstruction scheme in March 2020. Further, the bank has a sizeable networth of Rs 33,378 crore as on June 30, 2021 (Rs 33196 crore as on March 31, 2021) and the networth coverage for net NPAs remained adequate at 3.5 times as on June 30, 2021 (3.4 times as on March 31, 2021).
Nevertheless, while the bank has approval in place from board for raising of capital of Rs 10,000 crore, the bank’s ability to generate healthy internal accruals and raise timely capital for growth and potential asset side risks, remains a key rating sensitivity factor.
The rating also factors in the extraordinary systemic support from key stakeholders. The key stakeholders, have articulated in the past 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.
Also, SBI, the largest bank in India, had taken the lead in supporting Yes Bank in various forms. Over 60% (Rs 6,050 crore) of the equity infusion of Rs 10,000 crore, as part of the reconstruction scheme, came from SBI making it the single largest stakeholder in Yes Bank with a shareholding of 48.21% as on March 31, 2020. Further, SBI invested Rs 1,740 crore in the FPO of Yes Bank and continues to be the single largest stakeholder in Yes Bank with a shareholding of 30% as on June 30, 2021. Two directors on the board of Yes Bank are from the SBI. Furthermore, SBI has publicly articulated that for the three years from the implementation of reconstruction scheme, 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.
Yes Bank witnessed a steady outflow of deposits pre-reconstruction of the bank and till March 2020 given the challenges faced and the adverse news reports about the bank. As on March 31, 2020, deposits stood at Rs 105,364 crore as against Rs 227,610 crore as on March 31, 2019.
However, the deposit base has stabilised and improved after March 31, 2020. Total deposits (including certificate of deposits) as on June 30, 2021 increased to Rs 1,63,295 crore – registering an increase of 55% from March 31, 2020. This has been supported by the bank’s increased efforts to restrict deposit outflow and bring in new depositors. The top priority of the management, since the reconstruction of the bank, has been to build back the liability franchise and the bank has taken various steps and initiatives in this regard. The bank launched a few campaigns with overall strategy focussed on acquiring new customers, retaining existing clients, and winning back lost customers.
Further, the growth in deposits has been broad-based with all the segments such as current account (CA), savings account (SA), retail term deposits (deposits below Rs 2 crore) and wholesale term deposits registering a year-on-year (y-o-y) growth of 59%, 40%, 38% and 56%, respectively, during the period ended June 30, 2021. CASA deposits formed 27.4% of the overall deposits as on June 30, 2021, an improvement from 25.8% as on June 30, 2020. Additionally, retail deposits defined as SA deposits and retail term deposits remained stable at 48.8% as on June 30, 2021 (48.9% as on June 30, 2020). Furthermore, reliance on certificate of deposits has come down, which decreased by 58% y-o-y to Rs 3,827 crore as on June 30, 2021.
Nevertheless, top 20 depositors continue to form significant part at 18.3% of the total deposits as on March 31, 2021 and the ability of the bank to build a retail liabilities franchise on a steady state basis will be a critical rating sensitivity factor.
Weaknesses:
Asset quality of the bank continues to remain weak with elevated GNPA levels. GNPA stood at 15.6% as on June 30, 2021 and 15.4% as on March 31, 2021. While the GNPA has come down from 16.8% as on March 31, 2020, it has largely been on account of write-offs worth 6.3% (Rs 12240 crore) of the opening gross advances in fiscal 2021. The elevated GNPA levels are primarily driven by weak asset quality in the corporate segment, which had a GNPA of 27.1% as on June 30, 2021 (26.4% as on March 31, 2021). Further, while the non-corporate segment has relatively better asset quality performance than corporate, it has also been deteriorated by the impact of Covid-19 in the economy. GNPA in the non-corporate segment increased to 3.4% as on June 30, 2021 and 3.0% as on March 31, 2021 from 1.5% as on March 31, 2020.
As the bank has relatively higher exposure to contact-based sectors such as hospitality, travel and media for corporate exposure and impact of Covid-19 on non-corporate segment, the bank witnessed high slippages of 7.0% of opening net advances in fiscal 2021, impacting its asset quality performance. Nevertheless, the bank has stepped up its recovery efforts in the past few quarters. In fiscal 2021, it witnessed a total recovery of Rs 4933 crore.
Because of the elevated slippages and associated provisioning costs in fiscal 2021, Yes Bank reported a loss of Rs 3,462 crore with negative return on assets (RoA) of 1.3% for fiscal 2021. Its provisioning costs stood at Rs 9,713 crore (3.7% of average assets) for fiscal 2021. However, supported by lower provisioning costs of Rs 644 crore (0.9% annaulised) and recovery of Rs 249 crore from written-off accounts, the bank reported a profit of Rs 207 crore with an annulised RoA of 0.3% in the quarter ended June 30, 2021. Further, the bank has maintained high provision coverage for GNPAs at 66.8% as on June 30, 2021 (65.7% as on March 31, 2021). Including technical write-offs, the provision coverage stood at 79.3% as on June 30, 2021 (78.6% as on March 31, 2021)
Nevertheless, 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 has also been focussing on granular retail asset segments and working capital financing for the corporate segment. 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 Average LCR was 132% for quarter ended June 30, 2021, against the regulatory requirement of 100%. Liquidity also benefits from access to systemic sources of funds, such as the liquidity adjustment facility from RBI and access to the call money market. |
Outlook: Stable CRISIL Ratings believes Yes Bank will continue to maintain adequate capitalization and will continue to receive extraordinary systemic support, if required, over the medium term. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Bank Set up in 2004, Yes Bank is a private sector bank with total assets of Rs 2,55,485 crore, total advances of Rs 1,64,510 crore, and a network of 1,139 branches as on June 30, 2020.
On March 5, 2020, the central government had imposed a moratorium on Yes Bank, based on RBI’s assessment of lack of a credible revival plan by the bank, and in the interest of the public and depositors. During the moratorium that was initially slated to last till April 3, 2020, Yes Bank could not, without written permission from RBI, pay any depositor or creditor a sum exceeding Rs 50,000. The bank was also restricted from lending. The moratorium on the bank was lifted on March 18, 2020.
Following equity infusion of Rs 10,000 crore by 8 financial institutions under the reconstruction scheme of the bank, and with write down of Basel III ATI bonds aggregating Rs 8,415 crore (the first such instance in India), the capital position of the bank has improved significantly. Post this, the bank raised Rs 15,000 crore through an FPO in July 2020, which significantly improved the capital position of the bank. Its CET1 and overall CAR stood at 11.6% and 17.9%, respectively, as on June 30, 2021.
The bank had a profit of Rs 207 crore and total income (net of interest expense) of Rs 2459 crore in the quarter ended June 30, 2021, against a profit of Rs 45 crore and total income of Rs 2529 crore in the corresponding quarter of the previous fiscal. |
Key Financial Indicators (Standalone)
*Post factoring in the capital-raise from FPO |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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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Criteria Details
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