Global rating agency Moody’s on Tuesday placed Yes Bank's ratings under review for downgrade, citing Mumbai-based bank's exposure to finance companies.

"At the end of March 2019, Yes Bank's exposure to Indian housing finance companies (HFC) and non-bank finance companies (NBFC) represented 6.4 percent of its total exposure. In addition, Yes Bank had a 7 percent direct exposure to the commercial and residential real estate sector as of the same date, which is also under pressure, because liquidity conditions have worsened for the real estate sector, just like with the HFCs and NBFCs," Moody's said.

"Taking into account the bank's own disclosure of the stressed book, as well as Moody's expectation of stress in the Indian HFC, NBFC and real estate sectors, Moody's expects significant pressure on the bank's asset quality and therefore profitability and capital position. Nevertheless, the impact will be somewhat cushioned by the bank's proactive loan loss provisioning for anticipated stress," it said.

Moody’s said in April 2019, Yes Bank had classified about Rs 100 billion of its exposures, representing 4.1 percent of its total loans under the watchlist, that could translate into non-performing loans over the next 12 months.

Also, the banks' weak performance in fiscal 2019 led to its capital, as measured by the common equity tier 1 ratio, falling to 8.4 percent from 9.7 percent in fiscal 2018, the agency said.

According to Moody's, "The negative adjustment takes into account management's aggressive strategy, which has translated into rapid loan growth in the past 4-5 years and large concentrations to some of the Indian conglomerate groups. The adjustment also takes into account the Reserve Bank of India's (RBI) identification of several lapses and regulatory breaches in the various areas of the bank's functioning."

"In the review for downgrade, Moody's will consider the developments in the bank's solvency profile, namely, asset quality, capital, profitability, as well as any impact from the solvency pressures on its funding and liquidity profile. Moody's will also review the bank's corporate behaviour in light of the changes made and being made in the operations and strategy of the bank," it added.

Shares of Yes Bank ended at Rs 139.30, up Rs 3.40, or 2.50 percent on the BSE.