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FINANCIAL INSTITUTIONS

CREDIT OPINION
2 August 2018
Yes Bank Limited
Update to credit analysis
Update Summary
Yes Bank Limited's (Yes Bank) Baa3/Prime-3 foreign-currency deposit rating is one notch
above its Baseline Credit Assessment (BCA) of ba1 and reflects our assessment of moderate
support from the Government of India (Baa2 stable). Yes Bank's BCA of ba1 reflects the
bank's consistent profitability and small, but rapidly growing, franchise compared with those
RATINGS of its Indian banking sector peers.
Yes Bank Limited
Domicile India
Yes Bank's asset quality remained fairly resilient compared with that of other Indian banks,
Long Term CRR Baa3 with a gross nonperforming loan (NPL) ratio of 1.31% as of the end of June 2018, which
Type LT Counterparty Risk remains one of lowest among Indian banks that we rate. As of the end of June 2018, the
Rating - Dom Curr
Outlook Not Assigned
bank's reported Common Equity Tier 1 (CET1) capital ratio declined to 9.5% from 11.9% a
Long Term Debt (P)Baa3 year earlier due to very strong credit growth of 53% during the period.
Type Senior Unsecured MTN
- Fgn Curr Yes Bank's BCA also reflects its comparatively smaller, but improving, funding profile. The
Outlook Not Assigned bank's loan-to-deposit ratio was high at 100.6% as of the end of June 2018. While the level
Long Term Deposit Baa3
of current account and savings account (CASA) deposits of 36.5% remains below the rated
Type LT Bank Deposits - Fgn
Curr private-sector bank average of around 45% as of March 2018, the bank has been building
Outlook Stable its deposit base and increasing its branch network. As of the end of June 2018, the bank's
network consisted of 1,105 branches.
Please see the ratings section at the end of this report
for more information. The ratings and outlook shown
reflect information as of the publication date. Exhibit 1
Rating Scorecard - Key financial ratios
Yes Bank (BCA: ba1) Median ba1-rated banks
14% 30%
Contacts 12% 25%
Alka Anbarasu +65.6398.3712 10%
20%
VP-Sr Credit Officer 8%
15%
alka.anbarasu@moodys.com 6%
10%
4%
Srikanth Vadlamani +65.6398.8336
2% 5%
VP-Sr Credit Officer 1.3% 9.2% 1.4% 19.9% 23.8%
srikanth.vadlamani@moodys.com 0% 0%
Asset Risk: Capital: Profitability: Net Funding Structure: Liquid Resources: Liquid
Jien Hoong Chew +65.6311.2649 Problem Loans/ Tangible Common Income/Tangible Assets Market Funds/ Banking Assets/Tangible
Gross Loans Equity/Risk-Weighted Tangible Banking Assets Banking Assets
Associate Analyst
Assets
jienhoong.chew@moodys.com
Solvency Factors (LHS) Liquidity Factors (RHS)
Graeme Knowd +81.3.5408.4149
Source: Moody's Financial Metrics
MD-Banking
graeme.knowd@moodys.com
» Contacts continued on last page
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Credit strengths
» High profitability and focus on efficiency

» Adequate capitalization and loan-loss reserves

» Moderate probability of government support, resulting in one notch of uplift from its BCA for deposits

Credit challenges
» Sizable portion of the loan portfolio remains unseasoned owing to above-industry-average growth, which may lead to asset-quality
pressures

» Higher dependence on corporate deposits than that of its peers, but with a growing retail deposit base

Outlook
Yes Bank's deposit rating has a stable outlook.

The bank's BCA incorporates our expectation of relative stability in its fundamentals, and we do not expect to raise the BCA over the
medium term.

Factors that could lead to an upgrade


Upward pressure on the BCA could develop if (1) Yes Bank maintains its current asset-quality ratios while reducing its credit risk
concentration in large borrowers; (2) the bank's funding profile improves, for example, by growing its proportion of CASA/total deposits
to bring it in line with the industry average without weakening its net interest margin; and (3) the bank sustains its profitability and
maintains adequate loss-absorbing buffers.

Factors that could lead to a downgrade


Downward pressure on the bank's BCA and rating could develop from (1) a sustained deterioration in impaired loans or loan-loss
reserves, or if the rate of new NPL formation is significantly higher than previously experienced; or (2) a decline in earnings, which
would lead to a significant decrease in internal capital generation.

A downward revision of the sovereign rating could also lead to a downgrade in Yes Bank's deposit rating.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on
www.moodys.com for the most updated credit rating action information and rating history.

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MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Key indicators
Exhibit 2
Yes Bank Limited (Unconsolidated Financials) [1]
3-182 3-172 3-162 3-152 3-142 CAGR/Avg.3
Total Assets (INR billion) 3,115 2,143 1,646 1,355 1,086 30.14
Total Assets (USD billion) 48 33 25 22 18 27.34
Tangible Common Equity (INR billion) 258 221 138 117 71 37.94
Tangible Common Equity (USD billion) 4.0 3.4 2.1 1.9 1.2 34.94
Problem Loans / Gross Loans (%) 1.3 1.5 0.8 0.4 0.3 0.95
Tangible Common Equity / Risk Weighted Assets (%) 9.2 10.8 9.2 9.9 8.1 9.46
Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) 9.4 8.5 5.0 2.5 2.3 5.55
Net Interest Margin (%) 3.1 3.2 3.2 3.0 2.7 3.05
PPI / Average RWA (%) 3.2 3.3 3.2 3.2 3.1 3.26
Net Income / Tangible Assets (%) 1.4 1.6 1.5 1.5 1.5 1.55
Cost / Income Ratio (%) 40.2 41.4 40.9 41.3 39.4 40.65
Market Funds / Tangible Banking Assets (%) 19.9 15.9 17.2 18.4 19.4 18.25
Liquid Banking Assets / Tangible Banking Assets (%) 23.8 25.8 26.4 27.8 26.2 26.05
Gross Loans / Due to Customers (%) 109.0 99.4 94.6 88.4 82.5 94.85
[1] All figures and ratios are adjusted using Moody's standard adjustments [2] Basel III - fully-loaded or transitional phase-in; LOCAL GAAP [3] May include rounding differences due to
scale of reported amounts [4] Compound Annual Growth Rate (%) based on time period presented for the latest accounting regime [5] Simple average of periods presented for the latest
accounting regime. [6] Simple average of Basel III periods presented
Source: Moody's Financial Metrics

Profile
Yes Bank Limited is a new-generation private-sector bank that received a banking license from the Reserve Bank of India (RBI) and
launched operations in May 2004 as a wholesale bank, with mainly corporate loans and liabilities. The bank was incorporated by
Rana Kapoor and the late Ashok Kapur in November 2003. As of 30 June 2018, the Promoter and Promoter group collectively owned
19.98% of the bank’s total share capital.

The bank provides retail and corporate banking services to individuals, large and medium-sized companies, financial institutions, central
and state government agencies, and small businesses through a nationwide network of 1,105 branches, 1,741 ATMs and Bunch Note
Acceptors as of 30 June 2018.

The bank rapidly expanded its corporate loan book during the 2008-09 global financial crisis and has built a strong corporate banking
unit. Since then, the bank continues to focus on developing its capacity to cross-sell a wide range of corporate products while growing
its retail, and small and medium-sized enterprise (SME) customer platforms.

Detailed credit considerations


Asset-quality metrics are better than most other Indian banks that we rate, but above-industry-average growth could
result in a deterioration of these metrics
Yes Bank's asset-quality metrics moderately deteriorated over the last one year, with its gross NPL ratio at 1.31% as of 30 June 2018
compared with 0.97% a year earlier. Nevertheless, the bank's asset-quality metrics remain better than most other Indian banks that we
rate.

For the fiscal year ended March 2018, the net NPL formation rate (measured as slippages less upgradation and recoveries as a
percentage of gross loans) decreased to 0.64% of gross loans in fiscal 2018 from 1.06% a year earlier. Net NPL formation rate was
0.37% (annualized) in the first quarter of fiscal year ending March 2019 (fiscal 2019).

We expect downside risks to Yes Bank's asset quality, given the relatively unseasoned nature of the bank's loan book. The bank’s credit
growth has trended above the industry average, with an average growth of 35% over the last five years. Credit growth accelerated
in fiscal 2018, with growth of 54% compared with fiscal 2017, significantly higher than the industry average of 9.6%. Although loan
growth was 54%, nevertheless risk weighted assets growth was lower at 37% in fiscal 2018 indicating that some of the incremental
growth has come from better rated corporates. On a year-on-year basis, credit growth stood at 53% in the first quarter of fiscal 2019.

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MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

In addition, while this growth comes from a small base, the fast pace of this growth could expose the bank to risks as the loan book
seasons.

The strong credit growth was seen across the bank's lending segments, with corporate loans (including the international banking unit),
which represented 67.6% of the loan book as of June 2018, growing by 52% from a year earlier. The bank has also accelerated growth
in its SME and retail loans segments; nevertheless, the growth is coming from a small base.

Standard restructured loans, including those under various debt restructuring schemes, represent 0.12% of the bank's loan book. Taking
into account NPLs and restructured loans, the bank's stressed asset ratio was around 1.4% as of the end of June 2018.

Yes Bank continues to increase granularity in its loan exposure and reduce its concentration in large groups. The top 20 advances
represented 143% of the bank’s Tier 1 capital as of March 2018 compared to 267% as of March 2014.

We have adjusted the bank's Asset Risk score to ba1 to reflect the above mentioned factors.

Adequate capitalization, but capital consumption remains high in light of rapid loan growth
Although Yes Bank's level of capital supports its rating, the bank's capital is consumed quickly by its rapid expansion. As of the end of
June 2018, the bank's reported CET1 ratio declined to 9.5% from 11.9% a year earlier a result of strong credit growth.

In addition, the bank's tangible common equity (TCE)/adjusted risk-weighted assets (RWA) declined to 9.2% as of the end of March
2018 from 10.8% a year earlier. In line with our global standard adjustment, we apply a 50% risk weighting on Indian government
securities held by the bank, which results in higher RWA and lower adjusted capital ratios than those reported by the bank.

In June 2018, the bank's board approved a resolution allowing the bank to raise new capital amounting up to $1 billion (about INR68
billion) through the issuance of shares or convertible securities. The capital raise will be important for the bank to sustain its credit
growth. In fiscal 2019, we expect the bank to have an above industry loan growth of more than 30%.

Our assigned Capital score of ba3 reflects our expectation that Yes Bank's TCE/RWA will remain within 9%-10% because strong credit
growth will be balanced by the bank's capital-raising activities.

Strong profitability, supported by sound margins and the bank's focus on efficiency
Yes Bank continues to generate strong earnings compared with those of its Indian banking peers, with pre-provision income, as a
percentage of average RWA, at 3.2% and net income, as a percentage of total assets, of 1.35% in fiscal 2018. The strong earnings are a
result of steady loan growth and strong fee income. In the first quarter of fiscal 2019, return on assets improved moderately to 1.52%
as the benefit of strong loan growth in the last quarter of fiscal 2018, was fully reflected in the bank's operating earnings .

In terms of the key earnings drivers, Yes Bank's net interest margin of 3.5% in fiscal 2018 remained lower than the 3.7% average for the
three other Indian private-sector banks that we rate owing to its higher cost of funding.

In addition, Yes Bank's share of non-interest income is much higher than that of other private-sector banks that we rate. As of the
end of March 2018, the bank's non-interest income represented 40% of total income compared with the average of about 36% for
the other private-sector banks that we rate. In addition, non-interest income as of the end of June 2018 increased 49.6% from a
year earlier on the back of growth in income from foreign exchange, debt capital markets and securities, as well as fees derived from
corporate and retail banking.

We expect Yes Bank's profitability metrics to remain stable over the next 12-18 months because credit costs will stabilize after the
balance sheet cleanup initiated by the RBI across the banking industry in fiscal 2018. Credit costs, as measured by loan-loss provisions/
average gross loans, increased marginally to 74 basis points (bps) in fiscal 2018 from 64 bps in fiscal 2017 and 61 bps in fiscal 2016. We
expect the bank's credit costs will remain in the range of 70-80 bps in fiscal 2019. Credit costs trends remains on track with reported
credit costs of 60 bps on an annualized basis as of 30 June 2018.

We have assigned a baa1 Profitability score to the bank to reflect the factors listed above.

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Higher dependence on corporate deposits than that of its peers; although slightly mitigated by a growing retail deposit
base
Yes Bank finances its assets primarily through deposits, with customer and bank deposits accounting for 64% of its balance sheet and
borrowings accounting for 24% as of the end of June 2018. The bank's loan-to-deposit ratio stood at 100.6% as of the end of June
2018 compared with 93.2% a year earlier as a result of robust loan growth.

Yes Bank's deposit profile is weighted toward deposits from medium-sized and large corporates, institutions and government
corporations, which in total accounted for 43% of total deposits as of the end of June 2018. In addition, 35% of deposits are comprised
of low-cost CASA deposits. The remaining 22% of deposits consist of retail term deposits.

While Yes Bank's current level of CASA deposits remains below the domestic peer average, the bank is building up its deposit base
and improving its branch network. In addition to branch expansion, the bank leverages its corporate and institutional relationships to
generate deposits by opening employee accounts.

Yes Bank also reduced depositor concentration. The top 20 depositors represented about 12% of its total deposit base in March 2018,
compared with 17.6% in March 2012.

Yes Bank's funding profile was tested in July 2013, following RBI policies to reduce short-term liquidity. Despite these pressures, the
bank managed to sustain deposit growth through the period, indicating resilience to short (one to three months) periods of tighter
liquidity. The bank's low reliance on large deposits and sound liquidity in the banking system also provide some mitigation. Moreover,
the bank's ability to increase rates and continue growing deposits indicates that the long-term impact of tighter liquidity may be
primarily felt through its cost of funding.

Over the last few years the bank has also been raising long-term foreign currency funds from various multilateral institutions. The bank
also recently raised $600 million under its $1 billion medium-term note programme, which was established in December 2017.

Our Funding Structure score of ba1 reflects the above mentioned considerations, as well as the relative positioning of the bank’s
funding profile compared with that of its Indian peers that we rate.

Since January 2015, the RBI requires all banks to adhere to the liquidity coverage ratio (LCR) rules, which seek to ensure that banks
have enough high-quality liquid assets to withstand a 30-day liquidity stress scenario. The LCR is being introduced in a phased manner,
starting with a minimum requirement of 60% from 1 January 2015 and reaching a minimum of 100% on 1 January 2019. As of the end
of June 2018, Yes Bank's LCR was 101.04%.

Based on the LCR disclosure as of the end of March 2018, Yes Bank's retail deposits and deposits from small business customers
represented about 29% of its total deposit base. This compares with an average of around 56% for the other private-sector banks that
we rate.

We assign a Liquid Resources score of ba1 to reflect the bank's exposure to the Indian government through the mandatory holdings of
government securities.

Yes Bank's BCA is supported by India's Moderate Macro Profile


Primarily a domestic bank, Yes Bank's Macro Profile is aligned with that of the sovereign at Moderate. India has a large and diverse
economy, strong growth potential and improving global competitiveness. In addition, India's very large domestic market provides
strong domestic demand-driven growth, fueled by rising incomes, which shelter the economy from the impact of external demand
shocks.

Credit conditions in India reflect high and entrenched leverage in some corporate sectors. While the growth in corporate lending has
slowed, corporate leverage remains high despite asset sales and fresh equity infusions. Household leverage, on the other hand is low,
reflecting a low level of banking penetration.

The financial system has experienced a deterioration in its asset quality in recent years. Nevertheless, we expect the stressed asset
(NPLs + restructured loans) ratios to be close to their peaks because most exposures to weak corporates have been recognized. A
cleanup of banks' balance sheets is underway, with the latest effort being the new rules for bad debt resolution implemented by the RBI

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in March 2018, where banks can no longer resort to various loan restructuring schemes to delay the recognition of NPLs. This initiative
follows the review conducted by the RBI in December 2015, and the promulgation of the Insolvency and Bankruptcy Code 2016, which
provides a clearer framework for NPL resolution. The amount of haircuts that banks agree to in the upcoming NPL resolutions will be a
driver for their financial profiles.

The banks remain largely deposit-funded, with healthy contributions from CASA deposits. That said, individual banks vary in their
ability to gather retail deposits. Public-sector banks (excluding the State Bank of India [Baa2 stable]) are more dependent on wholesale
deposits, while private-sector banks tend to have stronger capabilities in retail marketing.

Domestic liquidity is also supported by the statutory liquidity requirement, which obliges banks to hold 19.5% of total term and
demand deposits in the form of liquid government securities. Furthermore, all the banks that we rate are able to meet their current LCR
requirements. The banks can meet their LCR requirements though only a part of their holdings of government securities are included as
high-quality liquid assets in LCR calculations. This testifies to the robustness of their liquidity profiles.

The Indian banking system had total assets of INR133 trillion as of the end of March 2018, equivalent to 81% of the country's GDP.
Public-sector banks represent more than 70% of total banking system assets.

The government has policies that require banks to direct a portion of new loans to targeted segments, which are known as priority
sectors. All banks must comply with the priority-sector lending requirements. Nevertheless, we do not make any adjustments for
industry structure, given the fact that many banks (especially the private-sector banks) have performed well, despite the priority-sector
lending requirements.

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Support and structural considerations


Affiliate support
Yes Bank's ratings do not benefit from affiliate support.

Government support considerations


Our assessment of the moderate probability of support to Yes Bank in the event of financial distress takes into consideration the bank's
modest, but growing, market share and its relative importance to India's banking system. As of March 2018, Yes Bank had a 2.3% and a
1.7% share of system loans and deposits, respectively.

The support assumption results in one notch of uplift to the deposit rating of Baa3.

Counterparty Risk (CR) Assessment


CR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails and are distinct from debt and
deposit ratings in that they (1) consider only the risk of default rather than both the likelihood of default and the expected financial loss
suffered in the event of default, and (2) apply to counterparty obligations and contractual commitments rather than debt or deposit
instruments. The CR Assessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance
obligations (servicing), derivatives (for example, swaps), letters of credit, guarantees and liquidity facilities.
Yes Bank's CR Assessment is positioned at Baa3(cr)/Prime-3(cr)
Yes Bank's CR Assessment, prior to government support, is positioned one notch above the Adjusted BCA of ba1 and, therefore, above
senior unsecured and deposit ratings, reflecting our view that its probability of default is lower than that of senior unsecured debt and
deposits. We believe senior obligations represented by the CR Assessment will be more likely preserved to limit contagion, minimize
losses and avoid disruption of critical functions.

Yes Bank's CR Assessment does not benefit from any further uplift from government support.

Counterparty Risk Ratings (CRR)


CRRs are opinions of the ability of entities to honor the uncollateralized portion of non-debt counterparty financial liabilities (CRR
liabilities) and also reflect the expected financial losses in the event such liabilities are not honored. CRR liabilities typically relate to
transactions with unrelated parties. Examples of CRR liabilities include the uncollateralized portion of payables arising from derivatives
transactions and the uncollateralized portion of liabilities under sale and repurchase agreements. CRRs are not applicable to funding
commitments or other obligations associated with covered bonds, letters of credit, guarantees, servicer and trustee obligations, and
other similar obligations that arise from a bank performing its essential operating functions.
Yes Bank’s CRR is positioned at Baa3/P-3
We consider India a jurisdiction with a non-operational resolution (non-ORR) regime. For non-ORR countries, the starting point for the
CRR is one notch above the bank's Adjusted BCA, to which we then typically add the same notches of government support uplift as
applied to the CR Assessment.

Methodology and scorecard


About Moody's Bank Scorecard
Our scorecard is designed to capture, express and explain in summary form our Rating Committee's judgment. When read in
conjunction with our research, a fulsome presentation of our judgment is expressed. As a result, the output of our scorecard
may materially differ from that suggested by raw data alone (though it has been calibrated to avoid the frequent need for strong
divergence). The scorecard output and the individual scores are discussed in rating committees and may be adjusted up or down to
reflect conditions specific to each rated entity.

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Rating methodology and scorecard factors


Exhibit 3
Yes Bank Limited
Macro Factors
Weighted Macro Profile Moderate 100%

Factor Historic Macro Credit Assigned Score Key driver #1 Key driver #2
Ratio Adjusted Trend
Score
Solvency
Asset Risk
Problem Loans / Gross Loans 1.3% baa1 ←→ ba1 Quality of assets
Capital
TCE / RWA 9.2% ba3 ←→ ba3 Expected trend
Profitability
Net Income / Tangible Assets 1.4% baa2 ←→ baa1 Expected trend
Combined Solvency Score baa3 ba1
Liquidity
Funding Structure
Market Funds / Tangible Banking Assets 19.9% baa3 ←→ ba1 Deposit quality
Liquid Resources
Liquid Banking Assets / Tangible Banking Assets 23.8% ba1 ←→ ba1 Quality of
liquid assets
Combined Liquidity Score baa3 ba1
Financial Profile ba1
Business Diversification 0
Opacity and Complexity 0
Corporate Behavior 0
Total Qualitative Adjustments 0
Sovereign or Affiliate constraint: Baa2
Scorecard Calculated BCA range baa3-ba2
Assigned BCA ba1
Affiliate Support notching 0
Adjusted BCA ba1

Instrument class Loss Given Additional Preliminary Rating Government Local Currency Foreign
Failure notching Notching Assessment Support notching Rating Currency
Rating
Counterparty Risk Rating 1 0 baa3 0 Baa3 --
Counterparty Risk Assessment 1 0 baa3 (cr) 0 Baa3 (cr) --
Deposits 0 0 ba1 1 Baa3 Baa3
Senior unsecured bank debt 0 0 ba1 1 -- (P)Baa3
[1] Where dashes are shown for a particular factor (or sub-factor), the score is based on non-public information.
Source: Moody's Financial Metrics

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Ratings
Exhibit 4
Category Moody's Rating
YES BANK LIMITED
Outlook Stable
Counterparty Risk Rating -Dom Curr Baa3/P-3
Bank Deposits Baa3/P-3
Baseline Credit Assessment ba1
Adjusted Baseline Credit Assessment ba1
Counterparty Risk Assessment Baa3(cr)/P-3(cr)
Issuer Rating Baa3
Senior Unsecured MTN (P)Baa3
YES BANK, IFSC BANKING UNIT BRANCH
Outlook Stable
Senior Unsecured Baa3
Source: Moody's Investors Service

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REPORT NUMBER 1131468

10 2 August 2018 Yes Bank Limited: Update to credit analysis


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Alka Anbarasu +65.6398.3712 Srikanth Vadlamani +65.6398.8336 Americas 1-212-553-1653


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Jien Hoong Chew +65.6311.2649 Graeme Knowd +81.3.5408.4149 Japan 81-3-5408-4100
Associate Analyst MD-Banking EMEA 44-20-7772-5454
jienhoong.chew@moodys.com graeme.knowd@moodys.com

11 2 August 2018 Yes Bank Limited: Update to credit analysis