A slump in Yes Bank's share price on Wednesday started when the lender's BSE filing informed that its board will consider raising funds by way of issuance of equity shares at its meeting on 30 August. The stock's value worsened after Moody's lowered its rating for the bank and also gave it a negative outlook.
Shares of Yes Bank fell by 10 percent on Wednesday afternoon to touch a low of Rs 58.05 apiece on NSE. This breaks the stock's three-day gaining streak.
Rating agency Moody's Investors Service downgraded Yes Bank's long-term foreign-currency issuer rating to 'Ba3' from 'Ba1,' foreign currency senior unsecured MTN program rating to (P) 'Ba3' from (P) 'Ba1', and Baseline Credit Assessment (BCA) and adjusted BCA to 'b1' from 'ba2'.
"The downgrade of YES Bank's ratings takes into account: the lower than expected amount of capital raised by the bank recently; and the risk that the substantial decline in the bank's share price will challenge its ability to raise sufficient capital to maintain the rating at its previous level," Moody's said.
On 14 August, the private lender concluded its Rs 1,980 crore qualified institutional placement (QIP), which was oversubscribed three times. The QIP will take the private bank's common equity tier-1 capital ratio from 8 percent to 8.6 percent.
The lender has been looking to raise funds to replenish its capital which was hurt by mounting bad loans and an increase in provisions. While the QIP will help the bank maintain minimum capital requirements under Basel III norms, there is a requirement of further capital growth.
Moody's feels that a bulk of the operating profits made by Yes Bank will be absorbed for bad loan provisions in the next 12 to 18 months, which will not help it with internal capital generation. This will leave the bank dependent on external capital raising, which has become challenging considering the sharp decline in share prices.