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

The Reserve Bank of India (RBI) and YES Bank are in talks over the bank’s plans to sell bad debts to an Asset Reconstruction Company (ARC) until it issues a new set of comprehensive guidelines .

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

The regulator wants the bank to avoid any conflict of interest with the ARCs, with YES Bank considering holding a minority stake in the same ARC. The Swiss challenge to JC Flowers’ bid is currently pending. JC Flowers was selected by the bank after inviting the ARCs for a joint venture.

When contacted, a Yes Bank official said he had not received any such communication from the Reserve Bank of India (RBI).

“The RBI publishes comprehensive regulations on ARCs. The report would also indicate whether banks can sell all of their NPAs to a single CRA and whether banks can hold a stake in them. The idea is to give a level playing field to all CRAs as they bid to buy bank loans,” said a source familiar with the development.

In November, a committee set up by the RBI issued a report which recommended the sale of distressed assets by lenders at an earlier stage to enable the highest recovery by CRAs. The committee highlighted the need for regulatory clarification on the sale of all categories of Special Mention Accounts (SMAs) to CRAs.

In addition, to incentivize lenders to sell their financial assets to CRAs at an early stage of the crisis, the committee recommended a waiver for lenders, on an ongoing basis, to amortize the loss on sale within two years. . The RBI is expected to issue new regulations soon.

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

In March 2020, the RBI and the government had drawn up a restructuring plan to save the bank. The State Bank of India and other lenders had infused Rs 10,000 crore under the scheme after providing loans to several businesses that failed to repay their debt.

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