Private lender YES Bank plans to raise up to Rs 4,000 crore through tier-II bonds, for better capital adequacy and to support business growth.
India Ratings has assigned an 'AA+' rating with a stable outlook for the proposed offer. The rating factors in the bank's ability to manage credit risk, a reasonably large and expanding franchise, sufficient levels of capitalisation after equity infusion and improved profitability buffers.
The stable outlook reflects an expectation that any deterioration in asset quality would be adequately absorbed by operating profits without impairing Tier-1 capitalisation (13.8 per cent ratio in June), said India Ratings.
The bank is expected to maintain above-average core capitalisation on an ongoing basis, in line with higher rated private sector peers. The rating also factors in the bank's proportion of bulk funding being relatively higher than better-rated peers. Although the former's concentration on the deposits side has been improving, depositor concentration remains higher than its larger peers.
Additionally, the bank has an asset/liability tenor gap, on account of a lower though improving share of the current account and saving account deposit ratio than larger peers, said the agency.
The bank's credit cost is expected to remain at 75-80 basis points in FY18. This takes into account the limited impact of the accelerated provisioning (at least 50 per cent on identified accounts by FY18) on the accounts identified under the Insolvency and Bankruptcy Code for reference to the National Company Law Tribunal.