India’s Yes Bank improves credit profile following $1.1b equity capital raise

The billion dollar capital raising will strengthen resilience against asset quality risks.

India’s Yes Bank’s credit profile is expected to improve “at a gradual pace” following its $1.1b equity capital raise, said Moody’s Investors Service.

The ratings agency upgraded Yes Bank’s outlook to stable after its 29 July announcement that it will be raising INR89b from funds affiliated with The Carlyle Group and Advent International, Each investor may potentially acquire up to a 10% stake in the bank. 

The billion-dollar capital raising will support its credit profile and strengthen its resilience against potential asset quality risks from headwinds such as higher inflation and tighter global financial conditions.

“The changes made to the bank's board and management team, the focus on identifying and resolving legacy problem assets, the lowering of risk appetite, and the multiple equity capital raises since the central-led reconstruction scheme in March 2020 have led to a more prudent financial strategy and strengthened risk management,” the ratings agency said.

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Yes Bank’s non-performing loan (NPL) ratio earlier declined to 13.4% as of end-June, whilst loan loss coverage increased to 82% from 78%. However, the bank's off-balance-sheet exposures to NPLs, restructured loans and loans overdue for more than 60 days pose risks to asset quality, Moody’s warned, adding that these items accounted for around 7% of total loans as of the end of June 2022. 

On the upside, the bank's plan to transfer the bulk of its NPLs to an asset reconstruction company will be credit positive. “[It] will ease the management burden on resolving legacy problem assets and help the bank focus on growing its assets and liabilities,” Moody’s said in a report.

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Funding and liquidity also improved as the bank grew its deposits and reduced its reliance on market funds. 

However, Moody's expects the bank to increase its risk appetite to improve profitability, which continues to pose risks to its financial strategy and risk management.