Moody’s Downgrades Yes Bank On Corporate Governance Concerns

Moody’s Investors Service has downgraded the ratings assigned to Yes Bank Ltd., citing corporate governance concerns and implications of the upcoming management transition on growth strategy of the bank.

The rating agency has pegged down both the foreign currency and local currency ratings for the lender. Yes Bank’s foreign currency issuer rating has been cut to Ba1 from Baa3. Its baseline credit assessment has been cut to Ba2 from Ba1.

Moody’s has also maintained a negative outlook on that bank’s ratings, suggesting an elevated probability of another rating downgrade.

The bank has seen resignations from three directors in quick succession, including Chairman Ashok Chawla who stepped down citing shortage of time. Another director R. Chandrasekhar stepped down saying that he was “unhappy” with certain developments, without specifying further. OP Bhatt, who was part of the search committee for a new chief executive officer also stepped down citing conflict of interest.

The bank is currently in the midst of a management transition with founder chief executive Rana Kapoor set to step down by end of January. Kapoor’s exit came after the Reserve Bank of India refused to grant him another three year term. The bank is yet to name a successor. A long standing dispute between the two promoter families of the bank has complicated the transition process.

According to Moody’s, while the bank’s credit fundamentals are stable, the developments surrounding the management transition could impact the bank’s ability to raise capital and hit growth.

Although Yes Bank's capitalisation is adequate, the bank would need to raise capital from the market to continue to grow its balance sheet more rapidly than the Indian banking system, Moody’s added.

Shares of Yes Bank fell sharply after the downgrade.