YES Bank Ltd has accepted JC Flowers Asset Reconstruction Company as the base bidder for the sale of identified non-performing assets (NPAs) worth around ₹48,000 crore.
In a notification to the exchanges, the private sector lender said it has ”entered into a binding term sheet” with JCF ARC LLC and JC Flowers Asset Reconstruction, effective immediately. The bank said it will hold a transparent bidding process on ‘Swiss Challenge basis’, using the JC Flowers ARC as the base bid.
After the Reserve Bank of India (RBI) rejected its proposal to set up an asset reconstruction subsidiary in March 2021, YES Bank had sought bids for the sale of its stressed portfolio — opting instead for a JV structure where the bank would hold a minority stake of up to 20 per cent.
Paving the way
The distressed asset sale will go a long way in helping clean YES Bank’s asset quality concerns, often termed as “legacy issues” by the bank’s MD & CEO, Prashant Kumar. It will also pave the way for fresh fundraising, which had hit a road block due to the ballooned NPA book, even though other financial metrics of the bank have been steadily improving since it was bailed out by a consortium of lenders led by the State Bank of India in March 2020.
The announcement reflects a trend of increasing direct NPA sales by lenders as stressed asset resolution under earlier routes such as the Committee of Creditors (CoC) and Insolvency and Bankruptcy Code (IBC) has been tedious and largely ineffective.
Piramal Capital and Housing Finance is set to sell distressed assets worth ₹4,367 crore, whereas Standard Chartered Bank recently sold NPAs of around ₹369 crore, according to reports. In a notice on its website, Piramal Capital and Housing Finance said it has received a base bid of ₹710 crore, on the basis of which it conducted a Swiss challenge auction. Industry experts, however, believe that both YES Bank and Piramal Capital are unlikely to receive higher bids. A large part of the stress on Piramal’s books are acquired NPAs post the merger of Dewan Housing Finance Ltd with the company last year.
Such direct sales raise the question of asset rehabilitation, as YES Bank-like portfolio transfers effectively translate to segregation or hiving-off of the stressed assets instead of their resolution. However, the ease of the structure allows for a one-time clean-up exercise for lenders such as YES Bank and Piramal Capital, that look to shed their legacy and merger stress, respectively.
Even as the market awaits the RBI’s final norms on sale of bad loans to ARCs, the rising popularity of direct asset sales could also mean that large ARCs such as the government-backed National Asset Reconstruction Company Ltd could be left to deal with only larger consortium-led bad loans, as lenders choose the direct sale route for smaller NPAs. Including NARCL, currently there are 29 ARCs in the country.