With the stage getting set for YES Bank’s gross non-performing assets reducing to 1.5–2 per cent, new investors may enter the bank. Sources indicate that once the ongoing deal with the US-based JC Flowers ARC for hiving off the stressed assets concludes, there could be at least two new investors making an entry into the bank with 10 per cent equity stake each.
The bank recently revealed that it has exited the reconstruction scheme in March 2020. This is almost eight months ahead of the three-year timeframe. For shareholders, though, the embargo on trading may not be lifted till March 2023.
NPA relief
A week ago, YES Bank struck a deal with JC Flowers ARC, which could give the much-needed facelift for its books. Last Saturday, the bank rolled out the Swiss Challenge process for selling bad loans worth ₹48,000 crore to the ARC. The assets are expected to be picked up by JC Flowers for a minimum price of ₹11,000 crore, and the process could take 50–75 days to conclude. By October or November this year, the bank’s balance sheet could look very acceptable compared to its present form.
Gross NPA, according to Prashant Kumar, YES Bank’s MD & CEO is set to shrink from 13.9 per cent in FY22 to 1.5 – 2 per cent when the sale of bad loans to ARC concludes.
The sale of assets would also involve the bank picking a 20 per cent stake in the Indian outfit of JC Flowers ARC for ₹350 crore. The assets sold to the ARC would comprise ₹28,000 crore of gross NPAs earmarked in FY22, ₹11,000 crore of technical write-offs and ₹9,000 crore of incremental bad loans. With this, the unresolvable chunk of corporate and retail NPAs would be taken care of. Not just that, at roughly two per cent gross NPA, the asset quality of the bank is set to return to the pre-distress period of FY17.
Post the sale of assets, what would require monitoring is ₹ 6,752 crore of restructured loans, of which ₹3,966 crore is Covid-related restructuring and ₹ 1,016 crore is the MSME book.
Entry of new investors
When Ravneet Gill took charge in 2019, the mountain of NPAs was a huge deterrent for potential investors to consider the bank favourably. With that problem nearing a resolution, it sets the stage for YES Bank’s second mega billion-dollar fundraise (₹7,500 crore), which was approved by its board in May 2020. The capital infusion will shore up the bank’s CET ratio from 11.4 per cent in FY22 to 14 per cent.
Sources say the bank is in advanced talks with a few private equity investors, including Carlyle and Advent, to pick up 10 per cent stake each. These investments will come through once the stressed assets are hived off to the ARC. While the bank has not indicated any timeline, YES Bank could hit the market for capital raise in the December quarter, if the Swiss challenge process for selling its distressed assets concludes as per schedule.
Having returned to net profit in FY22 (₹1,044 crore) after two years of heavy losses, its balance sheet cleansed up and new investors setting foot, YES Bank is only a few quarters away from turning a new leaf.