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JC Flowers ARC has made a bid of ₹11,100 crore for buying stressed assets of YES Bank Ltd worth ₹48,000 crore. .
If JC Flowers is selected as the ARC post the Swiss Challenge, YES Bank will invest up to ₹350 crore for a 20 per cent stake in the asset reconstruction joint venture, YES Bank’s MD and CEO Prashant Kumar said.
On Friday, the private sector lender accepted JC Flowers Asset Reconstruction Company as the base bidder for the sale of the NPA block. The bank then launched a transparent bidding process on ‘Swiss Challenge basis’, using the JC Flowers ARC as the base bid.
The entire process for completion of the Swiss Challenge and transfer of the stressed assets will take about 60-75 days, Kumar said. The proposed asset sale will help clean-up the lender’s asset quality, bring down its gross NPA ratio to below 2 per cent from 14 per cent as of March. The block of stressed assets worth ₹48,000 crore is currently valued at around ₹8,300 crore.
As per the Reserve Bank of India’s 15/85 norm, the ARC will pay 15 per cent of the bid upfront as cash, while the remaining amount will be held as security receipts (SRs). Further, a share of the recoveries will also go the bank in lieu of its shareholding in the ARC, Kumar said.
If any other ARC wins the Swiss Challenge, the entire portfolio will go to that entity, which will then decide if it wants YES Bank as a partner. “We don’t have the right. We’re not going to the Swiss Challenge where the ARC has to have us a partner,” Kumar clarified.
The asset sale and subsequent improvement in the asset quality will help YES Bank exit its reconstruction scheme, and pave way for the long-pending fund-raising by the bank, Kumar said.
He added that the bank is looking to improve is common equity tier-I ratio to 14 per cent from 11.5 per cent, for which it may raise up to $1 billion in FY23 to strengthen its capital base. As of March 2022, the CET-1 ratio was at 11.6 per cent.
The partnership with JC Flowers, if it materialises, will also allow YES Bank to venture into the asset reconstruction space as the JV eventually plans to also buy stressed assets from other lenders.
“We thought, why not take this as a business case? This was an opportunity to create a credible platform within the country which offers a solution around stressed assets,” Kumar said, adding that there are several banks siting on a large quantum of stressed assets and that the scope for asset reconstruction is huge.
“With a similar thought process, the government of India has also set up the NARCL. Our thinking is, can we also establish a similar platform in the private banking segment?”he added.
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