ICRA revises YES Bank’s outlook from ‘positive’ to ‘stable’ on RBI order on Rana Kapoor

ICRA, a part of Moody’s Investors Service, revised its outlook on YES Bank’s borrowings to ‘stable’ from ‘positive’ on the basis of the Reserve Bank of India’s direction last week cutting short the tenure of the company’s CEO Rana Kapoor.

“The revision in outlook to stable from positive considers the recent direction from RBI whereby it has communicated to bank that the existing managing director and chief executive officer (MD&CEO) Mr. Rana Kapoor, can continue till January 31, 2019 as against three-year extension approved by the shareholders in June 2018,” the credit rating agency said.

The board of directors of YES Bank will meet tomorrow to explore various options in light of the order from the central bank.

Kapoor is practically identified with YES Bank, and has played a crucial role in building up the 14-year-old company to its present stature.

However, the RBI is learnt to have listed out certain objections in its letter to the board.

RBI’s move could have implications for the bank, ICRA said.

“Given Mr. Kapoor is one of the founding directors of the bank and has been associated with bank for a considerably long time, ICRA would continue to monitor the underlying developments on the appointment of the MD&CEO,” it said.

Kapoor, being a major shareholder, has the right to nominate directors to the bank’s board.

The bank, set up in 2004, has been able to grow faster than others due to its focus on corporate banking.

As on June 30, 2018, the bank had a network of 1,105 branches and 1,741 ATMs (including BNAs).

“Over the years, the bank’s strong business growth, healthy net interest margins, stable profitability and healthy capitalisation have made it one of the top five private sector banks in India,” noted ICRA.

Even as ICRA changed the outlook — an indication of the expected change in a company’s rating in the future — the rating agency did not change the current rating on the bank’s borrowings, but reaffirmed it.

“The rating reaffirmation continues to factor YBL’s robust operating performance, its demonstrated ability to maintain comfortable asset quality through cycles, its high levels of fee income and its comfortable capitalisation levels supported by internal accruals and a demonstrated ability to raise capital at regular intervals,” it said.

It also pointed out that the outlook continued to be ‘stable’.

“The stable outlook considers the robust operating performance with stable profitability indicators,robust loan book growth with reduction in the concentration of its exposures, improvement in the bank’s liability profile, comfortable asset quality and comfortable capitalistaion with demonstrated ability to raise capital at regular intervals.”

It said the outlook may be revised to positive if the bank “maintains/improves its asset quality while diversifying its asset and liability profile”.

“Conversely, a weaker performance on the above parameters will be a credit negative.

“Further bank has reported material divergences in its asset quality and profitability during last two risk-based supervision audit conducted by RBI (FY2016 and FY2017); the same would remain a key monitorable,” it added.

ICRA noted that the bank has relatively high exposure to the corporate sector and relatively high capital consumption rate on account of robust growth.

“However, the bank’s demonstrated ability to raise capital at regular intervals alleviates this concern to some extent. Going ahead, the bank’s ability to maintain its asset quality, diversification of advances across retail and corporate, successful scale up of retail banking operations, reducing the concentration risk in the loan book and lower reliance on bulk funding are the key rating sensitivities.”