Yes Bank Moves To Plan-B After ARC Proposal Hits RBI Hurdle

After the Reserve Bank of India shut down Yes Bank Ltd.’s plan to park its bad loans in a separate entity, the lender is exploring other options to clean up its legacy loan book. More than a year after a reconstruction scheme was implemented, Yes Bank continues to hold large bad loans and has been seeking a way out.Its original plan was to set up an asset reconstruction company, majority-owned by the bank itself. However, the RBI, according to two people familiar with the matter, raised concerns about the structure. This, as the regulator’s guidelines attempt to ensure an arm’s length distance between a bank and an ARC, which may buy bad loans from the lender. Mint newspaper first reported this development in March..With its preferred plan rejected, Yes Bank is toying with the idea of setting up an ARC where it would be a minority participant, the two people cited earlier said. .The bank is in discussions with international distressed asset investors, including Cerberus Capital Management and Tilden Park Capital Management, to set up this ARC. Once the ARC is functional, it will participate in stressed asset auctions by Yes Bank and look to purchase these assets at fair value, the two people said.As part of the revised proposal, Yes Bank will specify that investment decisions of the ARC will be taken by a management team appointed in consultation with other shareholders. The bank may also consider moving some employees from its stressed asset resolution department to the newly-formed ARC.Once the structure is finalised, investors, including Yes Bank, will approach the RBI again for an ARC license, the people said.Yes Bank, RBI, Cerberus Capital and Tilden Park didn’t respond to queries mailed on Friday..In the year since it was reconstructed, Yes Bank has had some success in recovering loans from troubled borrowers. But gross bad loans are still at about a fifth of the lender’s book, based on pro forma non-performing assets data released while announcing earnings for the quarter ended December.According to disclosures by the bank, it had managed cash recoveries worth Rs 2,973 crore during April-December 2020. It has also written off loans worth Rs 8,274 crore in the first nine months of the last financial year. Earlier this month, the bank took control of Anil Ambani-owned Reliance Centre at Santacruz area in Mumbai, against a settlement of Rs 1,200 crore worth dues.In its analyst presentation for the quarter ended June 2020, the bank had said consultants had conducted due diligence on Rs 81,000-crore worth stressed accounts and had estimated recoveries worth Rs 55,000 crore. Recoveries may reduce due to the pandemic.According to the people cited earlier, a large portion of the bad loans included stressed corporate entities including the Ambani-owned Reliance Group firms, Zee Entertainment Enterprises Ltd., Videocon Industries, some major real estate firms, among others. Recoveries from some of these may be lower given the financial troubles faced by these groups.Will the bank’s plan to set up an ARC help speed up or improve recoveries. Vinayak Bahuguna, former chief executive of ARCIL, India’s oldest ARC, isn’t sure it will. It isn’t clear why the bank would want to pursue an investment in an ARC, when the sale of bad loans can happen even without creating a new entity, he said.“Maybe there’s a case to be made about the appetite of the ARC market, but the RBI also allows banks to sell assets to AIFs (alternative investment funds),” Bahuguna said. “If the bank already has investors on board who might be interested in buying assets from it, an AIF of these investors could be the buyer without the bank getting involved.”.From Yes Bank To Lakshmi Vilas Bank, Lessons From Bank Failures

Yes Bank Moves To Plan-B After ARC Proposal Hits RBI Hurdle

Yes Bank changes tack on ARC plan after RBI raises concerns.

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