JC Flowers to be base bidder for YES Bank's sale of Rs 48,000 crore of toxic loans

(Representative image)

Private sector lender YES Bank has approved JC Flowers Asset Reconstruction Company (ARC) to be the base bidder for the proposed sale of the bank’s identified stressed loan pool amounting to Rs 48,000 crore, the lender informed exchanges on Friday, July 15.

“In accordance with the guidelines issued by the Reserve Bank of India, the Bank proposes to run a transparent bidding process on Swiss Challenge basis for sale of such portfolio using the JC Flowers ARC’s bid as the base bid,” it said in an exchange notice.

Under the Swiss Challenge method of bidding, highest bid placed in the first round of auction becomes base price for other bidders before second round of auction. Any asset reconstruction company (ARC) or other third parties which places the highest bid in second round of auction gets awarded the asset, as per the Reserve Bank of India (RBI) guidelines.

As per the notice, the bank’s board approved the proposed deal on May 6, following which the final approval from the board credit committee came on July 13. The lender has signed a binding term sheet with JCF ARC LLC, and JC Flowers Asset Reconstruction for strategic partnership.

“Having subsequently fulfilled the requisite pre-conditions, the said term sheet has now become effective as on July 15, 2022,” it said.

Moneycontrol first reported on May 3 that the bank will conduct the ARC sale via the Swiss Challenge method.

“We are at a really advanced stage of finalisation of our partner. This can happen any day. As per regulations, banks are not permitted to invest more than 20 percent. So, our participation will be maximum to the extent of 20 percent,” YES Bank managing director and chief executive officer Prashant Kumar told Moneycontrol.

“The formation of the ARC will be done in a very transparent way in terms of what the partner has identified and which bid has been finalised. Then it could also be offered to another ARC in a Swiss challenge mode,” he said.

Asked whether the bank would find suitable buyers, Kumar said he felt that in the current market, there were not many ARCs able to demonstrate a good recovery trajectory.

“It is important to set up creditable ARCs in our country because there is a huge stressed assets market. Our thought process is that this ARC should not only resolve this pool of assets but also become a creditable ARC in the market and start aggregating stressed pools from other banks and financial institutions,” he said.

When asked on competition from the now nearly operational NARCL, Kumar said the stressed loan markets in India is large and healthy competition was needed in the markets.

At the end of March, YES Bank’s gross non-performing asset ratio stood at 13.9 percent against 15.4 percent last year and 14.7 percent in the previous quarter. The net NPA ratio was 4.5 percent as on March 31, lower than 5.9 percent last fiscal and 5.3 percent as on December 31.

In absolute terms, the lender’s GNPAs stood at Rs 36,479 as on March-end, lower than Rs 39,034 crore a year ago. The lender’s gross restructured loans stood at Rs 6,752 crore as at the end of March, while loans overdue between 61 and 90 days stood at Rs 1,264 crore as of March 31.