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Yes Bank's ARC plan will reduce the need for higher provision cover: ICRA

According to rating agency ICRA, Yes Bank's proposal to establish an Asset Reconstruction Company (ARC) and transfer its pool of stressed assets should lessen the need to increase provision cover on further slippages in order to keep net bad loans below 6%.

“This will also prevent the capital ratio from deteriorating as a result of such accelerated provisions. Yes Bank has received shareholder permission for a capital raise of up to Rs.10,000 crore, which could help the bank deal with any asset quality issues. If the stress materialises, timely capital raising will be important for the bank's capital and solvency situation," it warned.

A dozen investors have expressed interest in forming an asset rehabilitation firm with Yes Bank as a minority partner, according to the private sector lender. Brookfield Asset Management, Ares SSG, Oaktree Capital Management, JC Flower, Varde Partners, CarVal Investors, Avenue Asia Group, Bain Capital's India Resurgent Fund, Apollo Global Management, Rohatyn Group, and Silver Point Capital are among the private equity firms that have expressed interest.

Meanwhile, the rating agency upheld the lender's bond programmes' existing ratings. The rating reaffirmation takes into account Yes Bank's consistent expansion in deposit franchise since its reconstruction scheme, as well as the strengthening in its liquidity situation, according to Icra. “While deposit growth has been strong, the bank's share of corporate and wholesale deposits remains relatively high. Yes Bank's capacity to gradually establish a more granular deposit franchise will continue to be critical to its growth and profitability," the company said.

The demonstrated capital raises of Rs.15,000 crore in July 2020 and 10,000 crore in March 2020, which helped restore the bank's capital ratios, continue to provide comfort to the ratings, according to Icra. Furthermore, with a lock-in that forbids any reduction in its investment in Yes Bank below 26 percent before March 2023, the State Bank of India remains the largest shareholder with a 30 percent shareholding as of 30 June 2021.

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