Mumbai, Feb 12 (PTI) For the second time in two months, India Ratings (Ind-Ra) on Wednesday downgraded long-term issuer rating on certain debt instruments of Yes Bank to 'A-' from 'A' and also maintained it on the rating watch 'negative'.

The rating agency also said it reflects the continued delay and inconclusive quantum of the anticipated equity infusion in the beleaguered bank.

The downgrades are on three bonds worth Rs 25,680 crore, the agency said and said if the bank finalised the publicly announced fund raising plan by the end of the month, it could the same could be reviewed.

The domestic agency had downgraded the struggling lender on December 19, 2019, while international agencies have been doing so since last May.

In the latest round of rating actions, the domestic rater has downgrades three debt instruments of the mid-sized lender that has been struggling to raise core capital for months now--the Rs 11,000-crore Basel III tier 2 bonds, the Rs 11,100-crore additional Basel III tier 1 bonds, and the Rs 3,580-crore of infrastructure bonds.

"Downgrade reflects the continued delay and inconclusive quantum of the anticipated equity infusion. We believe this can adversely impact the Yes Bank's franchise and potentially create challenges on asset and liability side," India Ratings said in a late evening statement.

It can be noted that Moody's has downgraded the bank, which was once the top pick for many a brokerage, thrice in 2019 alone in June, August and November.

After issuing two downgrade warnings since June 11, Moody's had on August 28, 2019 yanked down the private sector lender's rating with negative outlook, citing the lower-than-expected capital ratio and its inability to raise fresh capital. It downgraded its long-term foreign currency Ba3 from Ba1, which is below investment grade or junk citing delays in the USD 1.2 billion fund raising plan.

Again on November 6, Moody's placed its ratings under review for downgrade, further confounding the pains for the lender that has been dogged by many an issue since the past one year.

Moody's also sees the bank's total dud asset to top 12 per cent this year basing on bank's own assessment of over 40 per cent of its Rs 30,000-crore of exposure to lower rated entities turning sour before March.

The bank has been passing through a tumultuous period ever since the Reserve Bank had in August 2018 asked the promoter-chief executive Rana Kapoor to leave the bank by January 31, 2019 over concerns on governance and loan practices, and his successor Ravneet Gill disclosing large under-reported stressed assets.

Under Gill, the bank reported its maiden loss in the March 2019 quarter and the strain on asset quality continues with it reporting a rise in the gross non-performing assets ratio to over 7.6 in the September quarter.

Noting that the bank also has a Rs 31,000 crore low rated book, wherein the its management expects a slippage of up to 40 per cent, the agency estimated the actual stressed pool to be at 12 per cent of the book, Moody's said in November.

India Ratings said the required capital infusion is critical to provide sufficient cushion to the possible credit cost impact from the stressed asset pool on regulatory capital requirement in the short- and medium-term, as well as for the bank's ability to continue to serve its customers adequately.

"Although the liquidity position of the bank seems adequate as of end-September with a liquidity coverage ratio of 114 per cent, we believe that, in the absence of any swift capital raising, its ability to manage asset and liability maturities can get tested further," the agency said.

The agency believes that raising sizeable capital in the very near-term can be challenging and can require various regulatory and other approvals. The rating can be reviewed towards end of the month, it added.

It also warned of a modest possibility of the bank deferring coupon payments and a principal write-down as the bank has sufficient revenue reserve buffers.

Citing the key downgrade drivers, it said delays in capital raising and also the uncertainty regarding the quantum and timing of the same as the biggest factor. It can be noted that Yes Bank had initially planned to raise capital of over USD 1.2 billion in FY20. Although the bank had announced plans of raising USD 2 billion of equity during the year, its board has rejected the binding term sheets of USD 1.2 billion offered by Canadian investor SPGP Group/Erwin Singh Braich early December.

Additionally, the decision to consider the binding term sheet of USD 500 million by Citax Investment Group is yet to be favourably finalised by the board.

As of Q2, the bank's CET1 adjusted for provision divergence was about 8.5 per cent against the published figure of 8.7 per cent. In addition to the CET1 being lower than most private sector banks (the median of about 12 per cent for private banks, it is accompanied by lower provisions on large corporate loans and stressed book almost 1.5x its gross NPAs.

Furthermore, the bank's exposure concentration (top 20 exposures to the total equity) decreased to 2.3x in the first half of FY20 from 2.5x in FY19 and 2.16x in FY18, while the next highest concentration among private banks was 1.54x.

Yes Bank stock tanked 4.5 per cent to Rs 35.20 on the BSE against the Sensex rallying over 0.80 per cent. The stock is down nearly 90 per cent from the August 2018 levels when RBI refused to extend Rana Kapoor's term as MS and CEO.

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