A new partnership with a US private-equity firm JC Flower & Company LLC allows it to purchase soured loans of other banks, Prashant KumarThe chief executive officer of the Mumbai-based lender said in an interview. The so-called asset reconstruction company, in which Yes Bank will take 19.99% stake, is planning to hire over 100 people in legal, compliance and investment management in the next few months, he said.
“We are trying to create a credible platform that has the capability and capability to buy stressed assets from other banks,” Kumar said, pointing to the bank’s experience in managing this area of business.
Yes Bank Kumar said he had last month agreed to sell 480 billion rupees ($5.9 billion) of the bad debt portfolio to JC Flowers ARC. The sale is a major step towards shedding the mountain of stressed loans by the bank, which led to a setback by India’s central bank in March 2020. The bank continued to be hit by bad loans even after posting quarterly profit.
While the sour-debt ratio among India’s lenders has now fallen to a six-year low, the country had the dubious distinction of having the worst non-performing debt ratio among the world’s major economies until two years ago.
Kumar said most foreign buyers of stressed assets have not been successful in India because they did not have the right local partners or lacked the scale. He added that JC Flowers’ experience in managing stressed assets will help in creating a reliable platform for the bank, and help ARC to become the largest of its kind in the country.
Through its funds, Jesse Flowers invests in the financial services industry. This includes distressed companies that seek to transform their balance sheets and operations by cleaning up, or by selling parts of the business to other investors or firms.
“The bank is not out of the woods yet and it is a high-risk stock,” said Kranti Bathini, a strategist at Mumbai-based Wealthmills Securities Pvt Ltd. Ltd., referring to the Bank’s progress so far and its growth strategy.
Apart from the JC Flowers deal, Kumar is also excited about the new shareholders in the bank. American private equity giant Carlyle Group Inc. and Advent International Corp. announced in July buying 10% stake each, and Kumar said their new capital commitment of $1.1 billion is the “biggest validation” of Yes Bank’s turnaround prospects.
Under Kumar, the bank has made several changes to its lending portfolio. It no longer poses a major risk to a single corporate borrower, and has also focused on expanding its retail offerings such as personal, home and vehicle loans, he said.
The Reserve Bank of India on Thursday gave Kumar an extension of three years to continue as chief executive.
Yes Bank, despite being small, can also provide a solution, Kumar said, adding that it is the only private Indian bank to open a rupee account for business with Russia. Kumar said, once customers start using the account to settle transactions, it will add some float to its balance sheet, though he declined to comment on the expected transaction volume.
Yes Bank stock outperformed a gauge of lenders this year
He is confident that the large shareholders of the bank, such as state Bank of India, holding its shares in March next year will not withdraw support after the lock-up is over. Shares of Yes Bank have gained over 20% this year, outperforming the 10-member S&P BSE Bankex index.
“When you see an investment growing, no one is taking back,” Kumar said. “Institutional investors are committed to the bank because they know there are no longer negative surprises.”