Tag: positive

Moody’s upgrades Yes Bank’s ratings, changes outlook to positive

Banking & Finance

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Moody’s Investors Service has upgraded Yes Bank’s ratings and changed its outlook to positive, reflecting its expectations of a further improvement in the lender’s credit profile due to clean-up of legacy stressed assets and improvements to its capital and profitability.

The rating agency has upgraded Yes Bank’s foreign currency issuer rating and long-term foreign and local currency bank deposit ratings to B2 from B3, it said on Wednesday.

Also see: Yes Bank launches co-branded card with BankBazaar.com

Further, it has also upgraded Yes Bank’s Baseline Credit Assessment (BCA) and Adjusted BCA to B3 from Caa2 and has changed the outlook on the bank’s ratings where applicable to positive from stable.

Liquidity improves

“Moody’s has upgraded Yes Bank’s issuer rating to B2 from B3 because its funding and liquidity have substantially improved in the past year, which have strengthened depositor and credit confidence in the bank,” it said, adding that the rating action also reflects the fact that despite the significant economic challenges since the onset of the pandemic, Yes Bank’s asset quality has deteriorated only modestly while its capital has remained stable.

Asset quality remains weak

It, however, noted that the private sector lender’s asset quality remains weak and continues to pose risks to its profitability and capital.

Given the positive outlook, Moody’s could upgrade Yes Bank’s ratings if the bank’s asset quality and/or capital materially improve. However, the agency could downgrade the bank’s ratings and BCA if its capital deteriorates significantly because of a strain on its asset quality, or if its funding and liquidity deteriorate.

Also see: Moody’s upgrades outlook for Indian banking system

For the quarter ended September 30, Yes Bank had reported a 74.3 per cent jump in its standalone net profit to ₹225.5 crore from a year ago.

Gross NPAs was at 14.97 per cent of gross advances as on September 30, 2021 versus 16.9 per cent a year ago.

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Yields harden as liquidity concerns outweigh positive news

Banking & Finance

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Benchmark yields rose 5 basis points last week compared to the previous one pushed up by concerns on the liquidity front despite a slew of positive news.

The week commenced with the FY22 second-half borrowing calendar coming in at ₹5.03-lakh crore, which was well within the anticipated level. Then came the fiscal deficit number for April-August at 31 per cent of the Budget Estimate. The GST collections for September also came in at ₹1.17-lakh crore which is 23 per cent higher compared to the same month last fiscal.

However, yields continued to move higher as concerns on the liquidity front took precedence. For one, the cut-off on the seven-day variable rate reverse repo auction came in at 3.99 per cent last week. Compared to this, the cut-off on the 14-day variable rate reverse repo auction was at 3.6 per cent the week before.

This implies that the RBI is gradually getting comfortable paying a relatively higher rate in order to suck out the excessive liquidity sloshing around in the system.

Rate review

Bond market participants are wary that the central bank will raise the variable rate reverse repo (VRRR) auction quantum as well as the tenors and also raise the fixed reverse repo rate in the upcoming Monetary Policy.

Ananth Narayan, Professor-Finance at SPJIMR, said a lot has happened over the past few weeks that wasn’t conducive for the bond market. “Commodity prices have shot up, there have been energy shortages around the world, mainly China and the UK, and the whole confusion about the US debt ceiling also added pressure on the US treasury yields.

“As we worry about cost-push and imported inflation, the concern is whether the RBI might start reducing G-SAP and raising overnight rates next week. I believe the central bank would not want to shock the markets. They may increase the VRRR and suck out some of the excess liquidity, but would also comfort the market that the liquidity would remain on the surplus side for much longer. I think it would be a surprise if the benchmark yield goes beyond 6.30 per cent in the short term,” Narayan said.

The 10-year US treasury yield also went up to 1.56 per cent last week before cooling to 1.46 per cent. With the benchmark yield hitting 6.24 per cent, bond traders expect the yield to find solace close to the 6.3 per cent level. All eyes are now on the Monetary Policy where the crucial thing to watch out would be any potential changes in the VRRR quantum, tenor as well as the fixed reverse repo rate.

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Crisil Ratings revises India Inc’s credit quality outlook to ‘positive’

Banking & Finance

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Crisil Ratings has revised the credit quality outlook of India Inc for fiscal year 2022 to ‘positive’ from ‘cautiously optimistic’ earlier.

Subodh Rai, Chief Ratings Officer, Crisil Ratings said, “Our outlook factors-in strong economic growth, both domestic and global, and containment measures that are localised and less stringent compared with the first wave, which should keep domestic demand buoyant even if a third wave materialises. We believe India Inc is on higher and stronger footing.”

The credit ratio (upgrades to downgrades) in the first four months of this fiscal improved to more than 2.5 times. It had touched a decadal low of 0.54 time amid the first wave in the first half of fiscal 2021, before recovering to 1.33 times in the second half, buoyed by a rebound in demand.

Broad-based recovery

A Crisil Ratings study of 43 sectors (accounting for 75 per cent of the ₹36 lakh crore outstanding rated debt, excluding the financial sector) shows the current recovery is broad-based. As many as 28 sectors (85 per cent of outstanding corporate debt understudy) are on course to see a 100 per cent rebound in demand to pre-pandemic levels by the end of this fiscal, while six sectors will see upwards of 85 per cent.

Among sectors with the most rating upgrades, construction and engineering, and renewable energy benefited from the government’s thrust on infrastructure spending, while steel and other metals gained from higher price realisations and profitability. Pharmaceuticals and specialty chemicals continued to see buoyancy backed by both, domestic and export growth.

But contact-intensive sectors such as hospitality and education services continue to bear the brunt of the pandemic and have had more downgrades than upgrades.

To be sure, targeted relief measures by the Reserve Bank of India (RBI) and the government amid the second wave have cushioned credit profiles in some sectors.

Somasekhar Vemuri, Senior Director, Crisil Ratings said, “Besides regulatory relief measures, a secular deleveraging trend has provided India Inc the balance sheet strength to cushion impact on their credit profiles. The median gearing for the CRISIL Ratings portfolio (excluding the financial sector) declined to ~0.8 time at the end of fiscal 2020 and then to an estimated ~0.7 time in fiscal 2021, from ~1.1 times in fiscal 2016.”

That said, unsecured retail and micro, small and medium enterprise loan segments are likely to witness higher stress over the near term. “The key monitorables from here would be a fat tail in the second wave or an intense third wave. Other risks to the positive credit outlook include regional and temporal distribution of rainfall and its implications for sustained demand recovery. Small businesses, in particular, will be more vulnerable to any slack in demand,’ the ratings agency said.

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