June 11, 2019 / 10:42 AM / 7 days ago

UPDATE 1-Moody's reviews Yes Bank for downgrade on exposure to weak financiers

(Adds details, updates shares)

BENGALURU, June 11 (Reuters) - Moody’s placed Yes Bank Ltd’s rating under review for downgrade on Tuesday, citing the Indian private-sector lender’s exposure to some weak financial companies.

“The review for downgrade takes into account Moody’s expectation that the ongoing liquidity pressure on Indian finance companies will negatively impact the credit profile of Yes Bank, given the bank’s sizeable exposure to weaker companies in the sector,” the rating agency said in a note.

Shares of Yes Bank, which rose as much as 5.6% intraday, pared some gains to settle 2.7% higher on the NSE benchmark that was up 0.36%.

Last week, Dewan Housing Finance Corp Ltd delaying payments on some of its bonds fanned fears of a crisis in the shadow banking sector.

The sector has been reeling under a liquidity crunch triggered by a series of defaults at major lender Infrastructure Leasing and Financial Services last year.

At March-end, Mumbai-based Yes Bank’s exposure to housing finance companies (HFC) and non-bank finance companies (NBFC) was 6.4% of its total exposure, Moody’s said, adding that the bank had a 7% direct exposure to the commercial and residential real estate sector, which is also under pressure.

The rating agency said it was reviewing the rating on several of the bank’s debt instruments, including its foreign currency issuer rating of ‘Ba1’.

Moody’s expects “significant” pressure on the bank’s asset quality, and therefore, profitability and capital position. It, however, expects the impact to be cushioned by the bank’s proactive loan loss provisioning.

The lender posted a surprise loss for the fourth quarter in April, hurt by a surge in provisions. That prompted brokerage Macquarie Research to set a rare double-downgrade on the company’s stock and triggered a massive sell-off in the stock.

Reporting by Chris Thomas in Bengaluru, Editing by Sherry Jacob-Phillips and Rashmi Aich

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