Moody’s Investors Service on Tuesday changed Yes Bank's rating outlook to negative from stable, citing board resignations and concerns over corporate governance.

The rating agency has downgraded the bank's foreign and local currency bank deposit ratings to Ba1 from Baa3 and foreign currency senior unsecured MTN program rating to Ba1 from Baa3. Its baseline credit assessment (BCA) and adjusted BCA to ba2 from ba1.

"The rating action considers the resignation of various members of the bank's Board of Directors -- which, when seen in conjunction with the Reserve Bank of India's (RBI) directive in September 2018 to restrict the term of the bank's MD & CEO as well as founder, Rana Kapoor, till 31 January, 2019 -- have raised Moody's concerns over corporate governance," Moody’s said in a statement.

This month, the private lender had seen three resignations from the board. R Chandrashekhar, its non-executive independent board member, had tendered his resignation from the bank due to "personal reasons".

On November 14, Ashok Chawla and Vasant Gujarathi had resigned from the board of the bank but no explanation was officially communicated to the exchanges about the reason behind the exit.

Further, Moody's said the bank's reported credit fundamentals remain stable, the developments surrounding the transition in leadership as well as the governance issues are credit negative because they complicate management's effective implementation of the bank's long-term strategy. Furthermore, these developments could constrain the bank's ability to raise new capital.

"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. If Yes Bank experiences difficulty in raising external capital, this will impede the bank's ability to grow its loan book," it added.

The negative outlook takes into account the uncertainty relating to the bank's asset quality and profitability performance and in particular any adverse findings from the RBI's risk-based supervision report or the so-called divergence report. In addition, any negative developments in the bank's funding and liquidity profile or ability to raise new capital to a level comparable with other similarly rated peers in India will exert pressure on its BCA, adjusted BCA and ratings, Moody’s added.

It said rating outlook could return to stable if Yes Bank maintains its current asset-quality ratios and there is no adverse impact from the RBI's risk-based supervision exercise; the bank manages to raise new equity capital and bring its capital ratios in-line with similarly rated peers in India; and the bank's funding profile remains stable without weakening its net interest margin.

Shares of Yes Bank closed 4.8 percent lower at Rs 183.15 on BSE.

First Published:Nov 27, 2018 3:56 PM IST