Last month, YES Bank agreed to sell a bad loan portfolio worth Rs 48,000 crore ($5.9 billion) to JC Flowers’ ARC, a move Prashant Kumar claims will assist the bank’s profitability.YES Bank, which nearly went bankrupt due to bad loans two years ago, is now looking to buy stressed assets from other lenders.
Through retail banking and asset management services, it provides a wide range of unique solutions for corporate and retail consumers. [8] The Reserve Bank of India (RBI) took control of the bank on March 5 in an effort to prevent its collapse due to an overwhelming volume of bad loans. Following a board restructuring, the RBI appointed Prashant Kumar, a former State Bank of India CFO and deputy managing director, as MD & CEO of Yes Bank. Sunil Mehta, a former non-executive chairman of Punjab National Bank, was designated as Yes Bank’s non-executive chairman.
According to Prashant Kumar, chief executive officer of the Mumbai-based lender, a new arrangement with US private-equity company JC Flowers & Co. LLC permits it to buy distressed loans from other banks. According to him, the so-called asset reconstruction firm in which YES Bank would invest 19.99 percent expects to engage up to 100 people in legal, compliance, and investment management over the next several months.
“We are attempting to develop a reputable platform with the capability and capacity to buy stressed assets from other banks,” Kumar explained, citing the bank’s experience in this sector of the industry. Last month, YES Bank agreed to sell a bad loan portfolio worth Rs 48,000 crore ($5.9 billion) to JC Flowers’ ARC, a move Kumar said would help enhance its profitability. The sale is a significant step forward for the bank in shedding the mountain of impaired loans that led to its surprise rescue by India’s central bank in March 2020. Even when it resumed posting, the bank remained heavily burdened with problematic debts.
While India’s lenders’ soured-debt percentage has already plummeted to a six-year low, the country had the terrible distinction of having the world’s worst non-performing loan ratio until two years ago. Most global buyers of stressed assets have failed in India, according to Kumar, because they lack the necessary local partners or scale. JC Flowers’ experience handling stressed assets will aid in the creation of a reputable platform for the bank, positioning the ARC to become the country’s largest of its kind.
JC Flowers participates in the financial services business through its funds. This includes distressed enterprises that it aims to turn around by improving their balance sheets and operations or selling portions of the business to other investors or firms. Nobody withdrew their money when they saw their investment grow, Kumar said. Institutional investors continue to support the bank because they are confident that there won’t be any more unpleasant surprises.
“The bank isn’t out of the woods yet, and it’s a high-risk company,” said Kranthi Bathini, a strategist at Mumbai-based Wealthmills Securities, referring to the bank’s progress and growth strategy. Nonetheless, “its credit and corporate book expansion could shift the needle for significant institutional investors to buy in the shares.”
Validation
In addition to the JC Flowers acquisition, Kumar is optimistic about the new bank shareholders. The two largest US private equity firms, Carlyle Group Inc. and Advent International Corp., announced in July that they were each purchasing a 10% interest. According to Kumar, these firms’ $1.1 billion in new capital commitments are the “greatest affirmation” of YES Bank’s prospects for a turnaround. The lending portfolio of the bank has undergone numerous modifications under Kumar. According to him, the company has shifted its attention to expanding its retail offerings, such as personal, house, and auto loans, and it no longer has sizable exposures to any particular corporate borrower. Kumar received a three-year extension from the RBI on Thursday to continue serving as CEO.
Despite its size, Yes Bank, according to Kumar, can offer answers because it is the only private Indian bank to open a rupee account for Russian commerce. Even while Kumar declined to comment on anticipated transaction volumes, he noted that once clients begin using the account to complete trades, it will add some float to its balance sheet. He is certain that after a lock-up on holding its shares expires in March of next year, the bank’s major owners, like the State Bank of India, would continue to support it. This year, the shares of Yes Bank have increased more than 20%, outpacing the S&P BSE Bankex Index, which has 10 members.
