Yes Bank's credit assessment reflects potential weakness in funding, liquidity: Moody's

Rating agency Moody's today said Yes Bank's baseline credit assessment (BCA) of "Ba1" reflects potential weaknesses in funding and liquidity profile.

The private sector lender has maintained an adequate loans to customer deposit ratio of 95% at end-March 2016. But higher reliance on corporate deposits relative to its peers creates risks in volatile markets.

The rating for bank reflects its sound asset quality, consistent profitability, and small but rapidly growing franchise when compared with its Indian banking sector peers, Moody's said in its credit opinion update.

The bank's level of low cost deposits - Current Account and Savings Accounts deposits (CASA) remains below the domestic peer average. But it has been building up its deposit base as well as increasing its branch network.

CASA ratio has improved to 28% in FY2016 from 15% in FY2012. As bank expands its retail presence, it could encounter operating challenges. As at end-March 2016, the bank's network consisted of 860 branches and 1,609 ATMs.

Referring to its expansion of loan book, Moody's said Yes Bank has increased its loan book at a compound annual growth rate (CAGR) of 27% for the five years (FY12 to FY16). Even so it has maintained one of the lowest non-performing loans (NPL) ratio among the Indian rated banks.

Despite a greater dominance of corporate loans (about 65% of loan book), its asset quality has remained fairly stable over the past years. It is only in the recent quarters, the bank has seen some slippages -- both on the NPL and restructured loans front. The gross NPL and standard restructured loans ratio rose to 0.76% and 0.53% at end-March 2016 compared to 0.41% and 0.50% a year ago, it said.

In addition, the bank has maintained strong provisioning buffer - specific provisions was at 62% of gross NPLs at end March 2016. This was partly the result of banks' strong pre-provision income (PPI). For the financial year ending March 2016, the bank's PPI as a proportion of average risk-weighted assets (RWA) was high, at 3.2%.

The bank's reported Tier 1 ratio remained stable at 10.7%.

Yes Bank