YES Bank plans to invest Rs 350 cr in JC Flowers, raise $1 bn in FY23

Private sector lender YES Bank plans to invest up to Rs 350 crore for a 20 per cent stake in asset reconstruction company (ARC) JC Flowers, the bank’s managing director (MD) and chief executive officer (CEO) Prashant Kumar said on Monday.

JC Flowers has been named as the base bidder for bad loans worth Rs 48,000 crore of YES Bank. The private lender plans to invest the funds after the completion of an ongoing Swiss Challenge bidding process.

“Out of 48,000 crore, our provision is 81 per cent...the base bid is Rs 11,100 crore,” Kumar said in an interaction with reporters.

Kumar added that YES Bank’s equity participation could only be up to 20 per cent. This is because RBI norms do not permit banks to invest more than that amount in asset reconstruction firms.

The Swiss Challenge method stipulates that the highest bid placed in the first round of an auction is the base price for other bidders before the next round.

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According to regulatory norms, the entity which makes the highest bid in the second round of auction is given the asset.

“This is the first step (towards the conclusion of this process) in the next 60-75 days,” Kumar said.

He said YES Bank had opted for a joint venture with JC Flowers as it already had an asset reconstruction company. And, the lender would, therefore, not have to request for a licence from the Reserve Bank of India (RBI).

In order to improve its core capital, the private lender is planning to raise up to $1 billion in the current financial year. This will take its common equity tier-1 (CET) ratio to 14 per cent from 11.5 per cent now, Kumar said.

Following the transfer of gross non-performing assets (gross NPAs) — a bulk of which have emanated from corporate loans — YES Bank’s gross NPA ratio would dip below 2 per cent, from around 14 per cent at present. This would help draw in investors, Kumar said.

“The 1.15 per cent gross NPA number would look very attractive to investors. The most important part would be that they would have to be credible names. If credible names come in, it would give a lot of confidence to our retail investors,” Kumar said.

“Currently, our CET ratio is around 11.5 per cent. We need to improve our CET ratio. That would also be a re-rating event. So definitely, we would like to raise capital. We are targeting to raise within the current financial year, but the market conditions are not conducive now. We would like to take our 11.5 per cent CET to around 14 per cent.”

Kumar said, in the future, the joint venture with JC Flowers could not only take care of assets offered by YES Bank but also those offered by other financial institutions.

YES Bank had launched the search for a partner to set up an ARC in August 2021. Ernst and Young had been conducting the process for the bank.

Kumar added that all ownership challenges that were faced by JC Flowers had been resolved to the satisfaction of YES Bank.