YES Bank jumps over 7% as Moody's upgrades outlook to 'Positive'- Grow Mudra

YES Bank jumps over 7% as Moody's upgrades outlook to 'Positive'

11 Jul , 2024 By : Debdeep Gupta

Shares of YES Bank jumped over 7 percent after global ratings agency Moody's revised its outlook to 'positive' from 'stable' in hopes of improvement in the lender's depositor base and lending franchise.

The positive outlook takes into account the improvement in the bank's asset quality and capitalization over the past 2-3 years.

So far this year, the stock of YES Bank has rallied over 24 percent, outperforming the benchmark Nifty 50 index that rose by 11 percent during the same period. Earlier, YES Bank had touched a 52-week high of Rs 32 apiece on February 9, 2024.

Moody's also affirmed Yes Bank's "Ba3" long-term (LT) foreign currency (FC) and local currency (LC) bank deposit ratings. They expect the bank's core profitability - measured by pre-provisioning profits to total assets - to gradually improve to above 1.2 percent over the next 12-18 months from 0.8 percent in the financial year ended March 2024.

"The positive outlook takes into account the improvement in the bank's asset quality and capitalization over the past 2-3 years, somewhat offset by the bank's weak core profitability driven by high funding costs and the strain from meeting priority sector lending (PSL) targets," they said in a statement.

The lender's deposits grew 10.3 percent in FY23 and 22.5 percent in FY24, with CASA deposits accounting for 40 percent of the bank's total deposits at the end of March 2024 from 26.1 percent in March 2021.

The bank's asset quality has also improved, said the global ratings agency. Its non-performing loan (NPL) ratio declined to 1.7 percent as of 31 March 2024 from 2.2 percent a year earlier, supported by lower slippages as well as stronger recoveries and higher write-offs. Moving forward, Moody's expects the NPL ratio to remain stable because of write-offs and recoveries of legacy problem loans.

Given the positive outlook, Moody's ruled out the possibility of a downgrade of Yes Bank's ratings over the next 12-18 months. "Nevertheless, we could downgrade Yes Bank's ratings if its asset quality significantly deteriorates, leading to an erosion of its profitability and capitalization," they cautioned.