Moody's Affirms Yes Bank’s Ba3 Ratings; Changes Outlook To Positive From Stable

Moody's Ratings affirmed Yes Bank Ltd.’s Ba3 ratings and changed the outlook to Positive from Stable amid expectations of improvement in the lender’s core profitability going forward.

The expected gradual improvement in Yes Bank's depositor base and lending franchise will help improve its core profitability over the next 12 to 18 months, Moody's said in a statement.

The Positive outlook takes into account the improvement in the bank's asset quality and capitalization over the past two-three years, somewhat offset by the bank's weak core profitability driven by high funding costs and the strain from meeting priority sector lending (PSL) targets, it said.

Moody's expects Yes Bank's core profitability, which is measured by pre-provisioning profits to total assets, will gradually improve to above 1.2% over the next 12 to 18 months from 0.8% in the financial year ended March 2024 (FY24).

The rating agency said an improvement in Yes Bank's ability to meet the central bank's PSL rules through new lending from its branches will help reduce operating expenses for meeting the targets, improving its overall profitability. In addition, Yes Bank's lending focus on higher yielding, albeit higher-risk retail and small and medium enterprise segments will help widen its net interest margins, it noted.

Moody's also said that a gradual increase in the bank's credit costs will be largely offset by recoveries from its legacy stressed assets, given the high loan loss provision coverage of those assets.

Deposits grew 10.3% in FY23 and 22.5% in FY24, the rating agency said, adding that the deposit quality has also improved, with current and savings account (CASA) deposits accounting for 30.9% of the bank's total deposits at the end of March 2024 versus 26.1% in March 2021.

Moody's affirmed Yes Bank’s Ba3 long-term (LT) foreign currency (FC) and local currency (LC) bank deposit ratings, its Ba3 LT FC issuer rating, its Ba3 LT FC and LC Counterparty Risk Ratings (CRR), its b1 Baseline Credit Assessment (BCA) and Adjusted BCA, the Not Prime (NP) short-term (ST) FC and LC bank deposit ratings and CRR, as well as the (P)Ba3 senior unsecured medium-term note program rating.

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