Private sector lender YES Bank is moving ahead with plans to set up its own asset reconstruction company(ARC). It has floated an expression of interest (Eol) for potential investors to partner with it in the venture.
"The prospective investor will be the lead partner or sponsor of the ARC, with the bank as the other significant partner/sponsor, for conducting the business of asset reconstruction...," said YES Bank in a newspaper advertisement.
According to the advertisement, the prospective investor or their sponsors should have a minimum asset under management (AUM) of $5 billion in the immediately preceding financial year.
It should also have demonstrated the ability to commit funds for investment or deployment in Indian companies or Indian assets of about $0.5 billion. The potential investor should also have demonstrated global experience of dealing in stressed asset space and an established track record of turnaround and resolution of distressed assets and non-performing loans.
The proposed investor should also meet the 'fit and proper' criteria of the Reserve Bank of India. It has given me till 31 August 2021 to potential investors to submit Eol.
Ernst and Young is the process advisor to YES Bank. In a previous interview, Prashant Kumar, Managing Director and CEO, YES Bank, had said that the lender had applied to the RBI for setting up an ARC with a controlling stake.
The prospective investor will serve as the ARC's main partner or sponsor, with the bank serving as the ARC's other important partner or sponsor. Foreign institutional investors, foreign portfolio investors, private equity, venture capital funds, domestic and foreign investment institutions, and asset management entities, among others, should have at least $5 billion in assets under management and funds deployed globally, according to the report. They should also have proved the ability to commit $500 million in money to invest in Indian firms or assets. Furthermore, the investor must fulfil the RBI's "fit and suitable" requirements and show worldwide experience in dealing with distressed assets as well as a track record of resolving troubled assets. It has offered investors till August 31 to submit Expressions of Interest. This is, however, the lender's second effort to split its problematic loans into a distinct business. The original intention was to create an ARC with a majority share, but the banking authority rejected the proposal due to a conflict of interest.
Yes Bank CEO Prashant Kumar also stated that the bank will not participate in the newly planned bad bank or the National Asset Reconstruction Company Ltd (NARCL) since it is expected to recover more money through the proposed ARC and save money on management fees and other expenses. According to the bank's June quarter reports, 27.1 percent of its Rs. 25,561 crore corporate loan portfolio was non-performing.
Stressed business companies included the Ambani-owned Reliance Group enterprises, Zee Entertainment Enterprises, Essel, DHFL, and Videocon, among others, in the lender's NPA pool, which was rescued last year after its financial condition worsened dramatically. As of June 30, gross nonperforming assets (NPAs) were for 15.6 percent of gross advances, up from 17.3 percent a year ago. Fresh slippages were Rs. 2,233 crore, but the bank expects “upgrades to outnumber slippages” in the coming quarters. Yes Bank recovered Rs. 4,933 crore from over 100 accounts in the previous financial year, and it has set a target of Rs. 5,000 crore for FY22.