India Ratings and Research (Ind-Ra) has assigned Yes Bank a long-term issuer rating of 'AA+' with a stable outlook and short-term issuer rating of 'A1+'. The agency has also assigned Yes Bank's proposed Rs 21 billion of Basel-III Additional Tier-1 (AT1) bonds an 'AA' rating with a Stable Outlook.

The issuer ratings factor in the bank’s demonstrated superior ability to manage its credit risk, high mix of better rated large borrowers, reasonably large and expanding franchise on both asset and liability sides, and strengthening of profitability buffers. The bank also generates a sizeable fee income, primarily from its corporate clients, which supports its profitability buffers.

Yes Bank's proportion of bulk funding is higher than that of better rated peers though the bank’s concentration on deposit side has shown an improving trend. However, the bank runs an asset-liability tenor gap on account of a lower share of the current account and saving account deposit ratio than larger peers.

Ind-Ra has notched down the rating for Yes Bank's AT1 bonds from its Long-Term Issuer Rating. For AT1 instruments, the agency considers 'discretionary component', 'coupon omission risk', and 'write-down/conversion risk' as the key parameters to arrive at the final rating. The agency recognises the unique going-concern loss absorption features that these bonds carry and differentiates them from the bank's senior debt (one notch in this case) factoring in a higher probability of an ultimate loss for investors in these bonds. Ind-Ra envisages coupon deferrals and principal write-down risk as a remote possibility in view of Yes Bank’s financial strength, adequate revenue reserve buffers and its track record of consistent operating performance through cycles.

The Stable Outlook reflects Ind-Ra’s expectation that any deterioration in Yes Bank's asset quality will be adequately absorbed by its operating profits without any impairment in its Tier 1 capitalisation (September 2016: Tier 1 ratio of 10.1%). The ratings also factor in the agency's expectation that the bank would maintain above average core capitalisation on an ongoing basis in line with its higher rated private sector peers.

Shares of the bank declined Rs 12.05, or 1.02%, to trade at Rs 1,168.75. The total volume of shares traded was 52,340 at the BSE (10.34 a.m., Tuesday).