Moody's said that the bank's weakening financial position can be somewhat offset by the planned capital raise. Nevertheless, there are significant execution risks around the timing, price and regulatory approvals required. During the review period, Moody's will focus on the bank's ability to raise new equity capital.
"An inability to raise the planned equity capital will negatively impact Yes Bank's credit profile and ratings," said Moody's.
In the quarter ended September 30, Yes Bank's asset quality substantially deteriorated with the gross non-performing loan (NPL) ratio rising to 7.6 per cent from 3.2 per cent at the end of March. About Rs 31,400 crore of loans and investments (about 10.4 per cent of total loans and investments) were rated below investment grade under the domestic rating scale.
Moody's expects about 30 to 40 per cent of these loans and investments to turn into NPLs in the next few quarters.
Taking into account the reported NPLs, management's expectation of further stress from the below investment grade rated exposures and other stressed assets -- such as net standard restructured loans and net security receipts -- Moody's estimates that Yes Bank's total pool of stressed assets registered about 12 per cent of loans and investments as of September 30.
Adding risk to asset quality is the increased pace of corporate downgrades from the bank's portfolio of investment grade to sub-investment grade rated companies. In addition, the ongoing liquidity pressures on Indian finance companies and the commercial real estate sector can further erode Yes Bank asset quality, given the bank's sizeable exposure to weaker companies in the sector.
Yes Bank's exposure to Indian housing finance companies and non-bank finance companies represents 6 per cent of its total exposure to the property sector. The bank also had a 7.2 per cent direct exposure to the commercial and residential real estate sector. Besides, Yes Bank's loss-absorbing buffers against stressed assets is weak, said Moody's.