Yes Bank To Invest INR 350 crore for 20 per cent in JC Flowers ARC

Private lender Yes Bank is planning to acquire 20 per cent stakes in JC Flowers Asset Reconstruction Company (ARC) for INR 350. The bank has identified the company as base bidder for its INR 48,000-crore pile of stressed assets. The bank plans to raise $1 billion in capital during the current financial year.

Yes Bank Managing Director and CEO Prashant Kumar said that the immediate investment by the bank would be 10 per cent of the cash component of the assignment value. The value of the base bid made by JC Flowers ARC is INR 11,100 crore.

“Anything in excess of 10 per cent stake will be subject to regulatory approval, up to 20 per cent. So about INR 350 crore will be the total capital required for a 20 per cent stake,” he was quoted as saying.

The bank is holding provisions worth 81 per cent of the portfolio identified for the transfer and the net carrying value of the assets on its balance sheet is INR 8,300 crore.

Out of the assignment value of INR 11,100 crore, JC Flowers ARC will pay 15 per cent in cash, with the remaining 85 per cent being in the form of security receipts.

Since the assignment value of the assets is more than their net present value, Yes Bank will not need to make any extra provisions. In case of any recovery by the ARC which is more than the assigned value, the bank would get a share.

In keeping with regulatory requirements, the bank launched a Swiss challenge auction for the assets. It plans to complete the entire exercise within 60-75 days. The sale of the asset block will bring down Yes Bank’s gross non-performing asset (NPA) ratio to around 2 per cent from 13.93 per cent as of March 31, 2022.

Yes Bank has envisaged its joint venture with JC Flowers ARC as a bad bank-like platform in the private banking space, which can effectively aggregate stressed assets before initiating resolution, Kumar said.

“This was an opportunity to create a credible platform within the country which offers a solution around stressed assets. The most important part was in terms of accumulating all the stressed assets from the different banks. With a similar thought process, the Government of India has also set up the National Asset Reconstruction Company (NARCL). Our thinking is, can we also establish a similar platform in the private banking segment?”

The bank initially planned to set up an ARC where it would be the majority partner holding a 51 per cent or 49 per cent stake. This plan was nixed by the Reserve Bank of India in 2021 as the central bank wanted Yes Bank to hold no more than 20 per cent in an ARC.

In August 2021, Yes Bank and EY India launched a process to identify an ARC partner. They received expressions of interest from 13 global players, from which JC Flowers ARC was eventually identified as the partner. Kumar said JC Flowers’ existing ARC licence along with the quality of governance at the institution and its global standing were important factors in the reckoning.