Crisil affirms Yes Bank\'s Rs 18,000 crore bonds rating at BBB

New Delhi: Ratings firm Crisil has reaffirmed BBB rating on Yes Bank's over Rs 18,000 crore bonds on the back of continued support by the country's largest lender SBI.

Crisil has assigned its 'CRISIL BBB/Stable' rating to the Tier II bonds (under Basel III) of Rs 13,941 crore and infrastructure bonds of Rs 3,780 crore of Yes Bank, the recently bailed out lender said in a regulatory filing on Saturday.

The agency has also reaffirmed its 'CRISIL A2' rating on certificates of deposit of Yes Bank.

BBB ratings are of moderate safety with regard to servicing of financial obligations. While debt securities with A2 rating are considered to have strong degree of safety regarding timely payment of financial obligations. Such instruments carry low credit risk.

"The ratings are underpinned by the expectation of continued extraordinary systemic support from key stakeholders and sizeable ownership by State Bank of India (SBI).

"Crisil has taken note of the Yes Bank Ltd Reconstruction Scheme, 2020, (the Scheme) that was notified by the Government of India on March 13, 2020," Crisil said on the rating rationale.

The reconstruction scheme followed the imposition of a moratorium on Yes Bank by the government on March 5, 2020, including the RBI, in order to bolster the bank's liquidity.

The moratorium was lifted on March 18, 2020, and the bank has since been providing full-fledged banking services to customers.

Under the reconstruction scheme, Yes Bank has, among other measures, got equity infusion of Rs 10,000 crore by 8 entities, mainly banks led by SBI.

"However, the ability of the bank to limit further deposit outflow, and 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," said the Indian arm of the S&P Global.

Crisil also said the bank's asset quality is weak and the impact of the shift in business model to focus on granular retail segments will need to be seen over a longer period.

"These will be key rating monitorables. The nationwide lockdown declared by government to contain the spread of Covid-19 pandemic has impacted disbursements and collections of financial institutions," the agency said.

The lockdown and restrictions are now being lifted in phases. Any delay in return to normalcy will increase pressure on collections and hence asset quality, it added.

Further, moratorium to Yes Bank customers may impact collections in near-term and any change in payment discipline of borrowers can affect delinquency levels post the moratorium, Crisil said.

"Given this, gross non-performing assets (NPAs) could rise due to weakening in most sectors. This may increase the credit cost in fiscal 2021, thereby impacting the profitability of the bank, and will be a key monitorable," it said.