Yes Bank plans to invest Rs 350 cr in JC Flowers; raise USD 1 bn core capital in FY23

Yes Bank will invest up to Rs 350 crore for a potential 20 per cent stake in asset reconstruction company JC Flowers, which has emerged as the base bidder for the lenders bad loans worth Rs 48,000 crore.The private sector lender is planning to raise up to USD 1 billion in FY23 to bolster its core capital base once the NPA challenge is over, its managing director and chief executive Prashant Kumar told reporters here on Monday.

Yes Bank will invest up to Rs 350 crore for a potential 20 per cent stake in asset reconstruction company JC Flowers, which has emerged as the base bidder for the lender's bad loans worth Rs 48,000 crore.

The private sector lender is planning to raise up to USD 1 billion in FY23 to bolster its core capital base once the NPA challenge is over, its managing director and chief executive Prashant Kumar told reporters here on Monday. The bank's core equity ratio stands at 11.5 per cent right now and will go to over 14 per cent after the capital raise, he said, adding that even though the market conditions are not conducive right now, it would like to conclude the process in FY23 itself.

Kumar said he feels the transfer of gross non-performing assets of over Rs 48,000 crore - which is legacy corporate loans gone bad - to the asset reconstruction company (ARC) will take care of the biggest challenge faced by the bank as it will reduce the NPAs to under 2 per cent from the present 14 per cent. He also said the bank has already begun a Swiss challenge process to have the highest bidder for the stock of NPAs and JC Flowers will have the right to match the price. When asked about challenges faced by JC Flowers, Kumar said the ownership issues at the entity have been ''resolved'' to Yes Bank's satisfaction as of now. However, the shareholding pattern of the ARC was not immediately known.

He said the bank, which had begun the process to form a joint venture with an ARC to resolve its sour assets in August 2020 and zeroed down on JC Flowers from a list of over a dozen companies, made the choice because of the credibility of the company and global expertise. The entire process of getting the best bidder under the Swiss challenge and transfer of assets to the ARC will take up to 75 days, he said, hinting that in the case of an entity other than JC Flowers emerging as the best bidder, the bank will go with the new entity.

Once selected, the ARC will try to resolve the loans of Rs 48,000 crore, for which the bank has already set aside 81 per cent as provisions, Kumar said, adding that the base bid value of the loans has been set at Rs 11,100 crore.

Assuming for 15 per cent of the money is to be paid upfront as a cash component, the bank has arrived at the figure of up to Rs 350 crore as the initial investment it will have to do, Kumar explained.

A senior official from the bank said the Rs 350 crore is 0.12 per cent of the bank's capital base. Kumar said the bank is looking at the ARC as a ''business case'', where it will help create a platform using its base of sour assets as the initial bunch and then also aggregate assets from other private banks to resolve an account and help all. He, however, did not quantify the universe of such sour assets that the platform can accumulate. When asked if there is a moral issue with such an arrangement, where the bank is funding a platform and stands to get benefitted itself, Kumar replied in the negative, saying that the ARC will be an independent platform with its own governance structures. It will have a board representation from Yes Bank. He said the RBI capped the maximum ownership in the proposed JV at 20 per cent and added that the bank will have to seek special permission the moment its stake goes beyond 9.99 per cent.

Meanwhile, Kumar said, the bank is confident of attaining its credit growth target of 15 per cent in FY23, which will be higher when compared to the 8.9 per cent expansion achieved in FY22 on the back of reducing large corporate loan exposures. The credit deposit ratio has now reduced to under 100 per cent from a high of 166 per cent at the time of the beginning of the government-led reconstruction process in March 2020, he said, adding that it wants to keep the ratio at 95 per cent. The bank scrip gained 0.90 per cent to close at Rs 13.3 apiece on the BSE on Monday, against a jump of 1.41 per cent on the benchmark.