Yes Bank crisis: Moody's downgrades ratings to Caa3, bank to remain under review

After the RBI has imposed a moratorium on Yes Bank, Moody's Investors Service has downgraded Yes Bank's long-term foreign-currency issuer rating to Caa3 from B2, the bank's long-term foreign and local currency bank deposit ratings to Caa1 from B2, and its foreign currency senior unsecured medium-term note (MTN) programme rating to (P)Caa3 from (P)B2.

In addition, the rating agency has downgraded the bank's long-term domestic and foreign currency counterparty risk rating (CRR) and long-term counterparty risk assessment (CR Assessment) to Caa1 from B1 and Caa1(cr) from B1(cr) respectively. Moreover, Moody's has downgraded Yes Bank's baseline credit assessment (BCA) and adjusted it to Ca from Caa2.

"The downgrade of Yes Bank's issuer and senior unsecured MTN programme ratings to Caa3 from B2 and (P)Caa3 from (P)B2 respectively is a result of an event of default triggered by the Reserve Bank of India's (RBI) 30-day moratorium, which prevents Yes Bank from making a full and timely payment to its senior creditors," said Moody's.

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The rating agency has, however, asserted that the rating is based on the government and RBI's assurance to recovery and safeguarding of interests of creditors and depositors, adding that it could upgrade the ratings after Indian authorities conclude a material capital raise, reconstruct the bank's assets and liabilities, or amalgamate the bank with another stronger bank in order to reduce the risks of losses to senior creditors and depositors. The ratings will be further downgraded if Indian authorities are unable to stabilise the bank within the planned moratorium period or if the moratorium is extended.

"Any risk of a likelihood of burden-sharing by Yes Bank's senior creditors in the bank's resolution will lead to a downgrade of the bank's senior debt ratings," it said.

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RBI's moratorium on Yes Bank

On Thursday, the RBI imposed a moratorium on Yes Bank, superseding its Board of Directors. In the meantime, former Chief Financial Officer of SBI Prashant Kumar has been appointed as its administrator. The RBI has cited Yes Bank's “inability to raise capital to address potential loan losses” and “serious governance issues” as some of the reasons for taking action. The RBI has however directed the State Bank of India (SBI) to pick up 49 per cent stake and it cannot reduce holding to below 26 per cent before three years from the date of capital infusion. From the appointed date, the authorised capital of the private sector bank would stand altered to Rs 5,000 crore and number of equity shares to 2,400 crore having face value of Rs 2 each.

(With inputs from agencies)

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