Five foreign investors have made presentations to the Yes Bank management to form a new joint venture asset reconstruction company (ARC) which will house the lender’s non performing assets (NPAs), three people familiar with the development said.
The investors which have made presentations include Los Angeles based $149 billion Ares-SSG Capital, $15 billion alternative investment firm Varde Partners, US based $55 billion Ceberus Capital and distressed asset giants $156 billion Oaktree Capital and private equity company JC Flowers, three people familiar with the move said. Individual investors and Yes Bank could not be immediately reached.
Yes Bank will likely hold a minority share in the proposed ARC in line with Reserve Bank of India (RBI) directions. The selected investor is likely to hold a majority as much as 80% to 85% in the new venture, one of the persons said. EY is helping Yes Bank with the process.
“The model is more of a NARC type. Banks are not encouraged to hold a major share in any ARC. That’s why they are selling it,” said a second senior executive involved in the matter.
He was referring to the government backed National Asset Reconstruction Co (NARC) which has been formed to resolve legacy bad loans from the banking sector.
“Investors have not yet been officially informed about the short listed firms so the process will take some more before the partner is selected,” said a third person familiar with the matter.
MUMBAI: Yes Bank has invited bids from potential partners for a proposed asset reconstruction company that will undertake recovery of bad loans. Management consultancy firm Ernst & Young is assisting the bank in the process.
In an advertisement on Wednesday, the private bank invited applications from investors with assets under management of at least $5 billion and possessing substantial experience in the distressed asset space. According to bankers, given the $5-billion assets under management eligibility criteria, it will be largely global distressed asset funds that will qualify.
Yes Bank had collapsed under the weight of bad debts in March 2020 and was placed under a moratorium by the RBI. Although Yes Bank was part of a consortium of lenders in most of the default cases, it was the worst hit because its exposure was disproportionate to its size and the bank had a presence in almost every major stressed asset. It was reconstructed through a government-notified scheme with banks led by SBI bringing in significant capital.
Given the complexity of recovering from large defaulters, Yes Bank’s new management had pursued setting up an asset reconstruction company from the time it took over in early April 2020. Addressing analysts in a post-results call last week, the bank’s MD & CEO Prashant Kumar said that it had made a cash recovery of Rs 5,000 crore last year, and the recoveries were much more than the provisions.
“The kind of effort that the engagement with those NPA customers which we have made during the last year — and which continued — I think would give us much better recoveries during the current fiscal year, and our recoveries would also result in significant gain on the P&L and there would not be any need to make any additional provision for this,” said Kumar.
The bank had total gross non-performing exposures of Rs 38,821 crore at the end of June 2021 as against Rs 39,034 crore in the previous quarter. “On the recovery side, our specialised stressed asset management team of about 100 professionals have demonstrated a significant track record of cash recoveries. He added that the team is divided into two parts — core resolution & recovery team, and support function. “We expect to have cash recoveries of Rs 5,000 crore in the current financial year,” said Kumar.
The proposed asset reconstruction company (ARC) for management of non-performing assets (NPAs) announced in Budget 2021 will not ‘jeopardise’ the activities of existing players in the space, Reserve Bank Governor Shaktikanta Das said on Thursday. While presenting the Union Budget 2021, Finance Minister Nirmala Sitharaman proposed to set up an asset reconstruction company and asset management company to consolidate and take over existing stressed debts and manage them.
“(In) no way will it (proposed ARC) jeopardise the activities of the existing ARCs. I think there is scope to have one more strong ARC…,” the governor said at an event organised by the Bombay Chamber of Commerce.
There are close to 28 asset reconstruction companies operating in the country at present.
Das said the proposal for setting up an ARC was given by public sector lenders to the government, which accepted it and announced it in the Budget.
The proposed entity will take over stressed assets from the books of public sector banks, and try to resolve them like any other ARCs are doing, he noted.
Das also said strengthening of regulatory architecture for existing ARCs is very much on the central bank’s agenda.
“Refining and further upgrading the regulatory architecture in respect of ARCs to ensure that they have a skin in the game and they are very much in business, is one aspect which is receiving a lot of attention from us,” he said, adding last year he had interacted with a group of ARCs but COVID-19 slowed progress on that front.
Speaking about stressed assets, the governor said there is growing awareness and realisation among banks in dealing with NPAs.
Even during the period when the Supreme Court ordered an asset classification standstill, banks proactively provisioned for stressed assets, he said.
The governor said RBI has also sharpened and deepened its supervisory methods and is now going to deep dive into areas of banking that were unexplored earlier.
With the help of the Central Repository of Information on Large Credits (CRILC) data coming in from banks on a regular basis, RBI has an idea on the quantum of stressed assets in various default buckets, he said.
“We have a precise idea of the build up of stressed assets in banks and as soon as we see a sign of stress, we immediately enter into a discussion with banks and proactively deal with the problems,” he emphasised.
The governor said apart from RBI’s supervisory and regulatory initiatives, the key to all issues is improving the governance in both public and private sector banks.
One area which requires focus of the bank management is on improving their credit appraisal skills and taking measures to see whether evergreening of loans, which was happening at some point, is suitable or not, Das said.
He also said the country’s financial sector currently is in a much better place than it was earlier. HV ABM ABM
In preparing for the formation of a so-called ‘Bad Bank’, the Indian Banks’ Association has asked lenders to furnish data on stressed accounts with principal outstanding above ₹500 crore, both under consortium and multiple banking arrangement.
This will help in assessing the capital required to float the ‘Bad Bank’, which has been envisaged as an ‘Asset Reconstruction Company (ARC)/Asset Management Company (AMC)’ structure, to clean up lenders’ books
The IBA is working with the Department of Financial Services and a few lenders to set up the ‘Bad Bank’, pursuant to the announcement by Finance Minister Nirmala Sitharaman in the Budget.
Specifically, banks have been asked to submit details of their stressed accounts exposure (fund and non-fund based as also debt investment) above ₹500 crore as on December-end 2020 under consortium/multiple banking arrangement (MBA). The data include both IBC and non-IBC cases.
Excluded entities
Fraud accounts, those in sight of resolution under the IBC and those under liquidation, accounts of financial service providers (such as NBFCs, mutual funds and broking firms), and quasi equity/equity and unsecured exposures have been excluded from the reporting format.
What this means is that the ‘Bad Bank’ will not buy lenders’ exposures to these set of accounts.
Banking expert Hari Hara Mishra said, “While an integrated platform (Bad Bank) for all high-value non-performing assets (NPAs) will facilitate debt aggregation and help faster resolution, bridging price expectation mismatch between banks and the proposed ARC may pose some challenge, given the complexity of security interest and varying charge particulars, which characterise the Indian lending landscape.”
A detailed framework for the ARC is in the works, financial services secretary Debasish Panda said earlier this month, adding that the government will not be putting in any money.
As the process to set up a new national asset reconstruction company (ARC) gathers steam, Punjab National Bank (PNB) has begun the process to exit Asset Reconstruction Company (India), also known as Arcil. The bank’s investment arm on Monday sought expressions of interest from potential buyers in a public notice.
“PNB has initiated a sale process to offer its holding of 3,25,06,486 equity shares i.e. 10.01% of the paid-up equity share capital of ARCIL (“proposed transaction”). PNB Investment Services Limited is the advisor to PNB (referred to as “PNBISL”/ “advisor”) for the proposed transaction,” PNBISL said in the notice.
Arcil’s other sponsors are: Avenue India Resurgence, State Bank of India, IDBI Bank and ICICI Bank. Arcil is an associate member of the Indian Bankers’ Association. In November 2018, US-based Avenue Capital bought a 27% stake in the company for an unspecified amount as investors IDFC Bank, Ashmore Capital, FirstRand Bank, Barclays, Singapore’s GIC and Karur Vysya Bank exited it.
There has been little clarity so far on how the new ARC, proposed in the Budget, will be funded. While some government officials have said that it will be up to banks to put in seed money, it is not yet clear which banks will actually invest. A detailed framework for the ARC is in the works, financial services secretary Debasish Panda said earlier this month, adding that the government will not be putting in any money.
FE had reported in January that bankers plan to seek two exemptions for the new ARC. First, relaxation of the September 1, 2016 circular which effectively requires banks to provide for an asset assigned to ARCs as if it were still on the bank’s books. The other would be to exempt the new ARC from making future provisions for assets it buys.
In a recent report, SBI’s economic research wing said public sector banks (PSBs) now have a provision coverage ratio of around 86% (up from 62% in FY18). “This implies that the PSBs would have provided for most of the bad assets and a wholesale transfer of the bad assets to the bad bank is just a technical issue and the process of recovery and resolution could be carried out much better,” the report said.
I think at the end of the financial year 2021 (FY21), our credit growth should be around 7%.
The country’s largest lender, State Bank of India (SBI), expects a double-digit credit growth by the second quarter of financial year 2022 (Q2FY22). In an interaction with media after earnings, SBI’s chairman Dinesh Kumar Khara said the bank is expecting around 7% credit growth at the end of the current financial year (FY21). Khara also said that lender will not require any more provision for transferring of the asset to an asset reconstruction company (ARC) proposed in the Union budget. Excerpts:
Given there is a proposal to transfer the bad loans to a national asset reconstruction company (ARC), will any additional provisioning be required? We are already having provisioning coverage ratio (PCR) of more than 90%. As and when it materialises, I don’t expect we will require any additional provisioning. In any case the modalities of the valuation at which the assets will be transferred is yet to be firmed up, and that is being discussed and deliberated. Once we have a clarity on that, we will have even a firmer picture. But I would say, considering the fact that even in our corporate advance book also, our PCR is as high as 87-88%, so I do not think we will require any more provision before we transfer any of the asset to an ARC and asset management company (AMC).
Can you break down your proforma slippages? Will you be able to contain your total slippages at `60,000 crore as per your earlier guidance? In aggregate we have received Rs 18,000 crore restructuring applications. Around Rs 3,900-crore restructuring requests have come from the retail personal segment, around Rs 2,500 crore from small and medium enterprises (SME) and around Rs 11,000 crore from the corporate segment. Proforma slippages at nine months ending December 2020 remained at Rs 16,461 crore and the total restructuring requests till December 2020 are at Rs 18,125 crore. So, put together total slippages and restructuring up to Q3FY20 remained at Rs 41,216 crore. For the whole financial year, total slippages and restructuring at the end of financial year (FY21) should remain within Rs 60,000 crore.
What is your credit growth target at the end of financial year 2021 (FY21)? I think at the end of the financial year 2021 (FY21), our credit growth should be around 7%.
Last quarter you said that SBI’s credit growth would be around 8-9%, have you revised that due to subdued corporate credit growth? Corporate loans are subdued even now. We would see growth coming from the public sector entities’ capital expenditure. That is why I have indicated credit growth more in the range of 7%, considering the fact that only two months are left for the financial year. So, earlier we had indicated 8%, which is now deferred to 7% credit growth.
By when do you expect double digit credit growth for SBI? I would expect from the second quarter of financial year 2020 (Q2FY22) onwards, we should be able to see double-digit credit growth.
You said that SBI expects pick-up in the corporate loan book. What gives you confidence for that? The reason for the confidence is that if at all there is going to be infrastructure spend, the way it has been indicated in the Budget, there is going to be a definite improvement in the economic activity in the core sector which is iron and steel, cement, and construction sector. So, actually that will lead to the demand generation.
Will you revise your credit cost guidance of 2%? Where do you stand now? As the situation stands, we should be able to keep the credit cost much lower than 2%. Even with the proforma slippages, our credit cost at the end of Q3FY20 stands at 1.1%. So, I think we should be much better than our own guidance of 2% credit cost.
After government has announced increasing the foreign direct investment (FDI) limit in the insurance sector to 74% from 49%, will your foreign partner in the insurance subsidiaries look to increase stake? The provisions announced in the Budget says that foreign investment is permitted, but the ownership still continues with the Indian owners. At least they will have 51% ownership. As of now we do not have any such plan. May be going forward, we will evaluate at the material point of time. To my mind, as of now there is no change in the policy-thinking of the insurance subsidiaries.
Union Budget has proposed a new Development Finance Institution (DFI). Given that SBI is a large player in the project finance space, do you see any need for re-strategising as the whole idea is to take the burden of the infrastructure financing from the banking system? It is a very welcome step announced by the Finance Minister (FM) for setting up of DFI to support infrastructure needs of the country. I would say there is an ample room for other institutions to play in this space. This space will continue to be open for us. As the market evolves, there would be situation where such loans would be subject to secondary market also. So, I think we will have enough space to grow in this particular segment. And, we perceive it as an opportunity for us to have excellent players in the space and to cater to the needs, because infrastructure needs of the economy are going to grow like anything. So, for that many more players are required.
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Edelweiss Financial Services Ltd (EFSL) has decided to close its public issue of secured redeemable non-convertible debentures (NCDs) on January 4, 2021 against the scheduled close of January 15, 2021.
EFSL’s NCD issue, amounting to ₹100 crore (base issue), with an option to retain oversubscription up to ₹100 crore aggregating to a total of ₹200 crore, opened for subscription on December 23, 2020.
The debenture fund raising committee has decided to exercise the option of early closure and to close the issue on January 4, 2021, the company said in a regulatory filing.
EFSL, in a statement issued on December 21, 2020, said its NCDs offer an effective yield (cumulative) of 9.95 per cent per annum for 120 months tenure, 9.35 per cent per annum for 36 months tenure and up to 9.80 per cent per annum for 60 months tenure.
Seventy five per cent of the funds raised through this issue will be used for the purpose of repayment /prepayment of interest and principal of existing borrowings of the company.
The balance is proposed to be utilised for general corporate purposes, subject to such utilisation not exceeding 25 per cent of the amount raised in the issue, EFSL added.
EFSL is principally engaged in providing investment banking services and holding company activities comprising development, managerial and financial support to the business of Edelweiss group entities.
It has seven lines of businesses ― corporate credit, retail credit, wealth management, asset management, asset reconstruction company, life insurance and general insurance.
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