YES Bank's plan to sell Rs 12,000-cr bad loans to ARC faces delay

RBI wants the bank to avoid any conflict of interest with the ARC as YES Bank plans to hold a minority stake in the same ARC

The Reserve Bank of India (RBI) and YES Bank are in discussions over the bank's plans to sell bad loans to an asset rec¬o¬nstruction company (ARC).

YES Bank is planning to sell its bad loans worth Rs 12,000 crore to the ARC to be set up by American financial powerhouse JC Flowers and also hold a stake in the new ARC.

The regulator wants the bank to avoid any conflict of interest with the ARC as YES Bank plans to hold a minority stake in the same ARC. The Swiss challenge to the offer made by JC Flowers is currently pending. JC Flowers was selected by the bank after it invited the ARCs for a joint venture.

When contacted, a YES Bank official said they have not received any such communication from the Reserve Bank of India (RBI).

“The RBI is coming out with comprehensive regulations on the ARCs. The report would also have directions on whether the banks can sell their entire NPAs to a single ARC and whether the banks can own a stake therein. The idea is to give a level playing field to all the ARCs while they bid to buy bank loans,” said a source close to the development.
 

In November, a committee set up by the RBI had come out with a report that recommended sale of stressed assets by lenders at an earlier stage to allow for highest recovery by the ARCs. The committee highlighted the need for regulatory clarification on sale of all categories of special mention accounts (SMAs) to the ARCs.

Besides, as a measure to incentivise lenders to sell their financial assets to ARCs at an early stage of stress, the committee recommended a dispensation to lenders, on an ongoing basis, to amortise the loss on sale within two years. The RBI is expected to come out with fresh regulations soon.

YES Bank’s plans to sell the bad debt comes at a time when for the financial year ended March 2022, the bank reported a profit of Rs 1,066 crore after two successive years of heavy losses. The bank also doubled its deposit book from about Rs 1.05 trillion in FY20 to Rs 1.97 trillion by March this year.

In March 2020, the RBI and the government had framed a restructuring scheme to salvage the bank. State Bank of India and other lenders had infused Rs 10,000 crore under the scheme after it gave loans to several companies which failed to repay debt.