Yes Bank picks JC Flowers ARC as partner to sell stressed loans worth ₹48,000 cr

Private lender Yes Bank has signed a binding term sheet with JC Flowers Asset Reconstruction (ARC) for the proposed sale of an identified stressed loan portfolio of the bank aggregating to ₹48,000 crore.

"Pursuant to the enabling approval of the Board of Directors on May 06, 2022 and the final approval from the Board Credit Committee on July 13, 2022, the Bank has signed a binding term sheet with JCF ARC LLC and JC Flowers Asset Reconstruction Private Limited ("JC Flowers ARC") for strategic partnership in relation to sale of identified stressed loans of the Bank," the private lender says in a stock exchange filing.

The private lender says it has decided that the JC Flowers ARC will be the base bidder for a proposed sale of an identified stressed loan portfolio of the bank.

"In accordance with the guidelines issued by the Reserve Bank of India, the Bank proposes to run a transparent bidding process on Swiss Challenge basis for sale of such portfolio using the JC Flowers ARC's bid as the base bid," it adds.

Under the Swiss Challenge method of bidding, the highest bid placed in the first round of auction becomes the base price for other bidders before the second round of auction.

The said term sheet has now become effective as on July 15, 2022.

Credit growth of non-banks near pre-pandemic highs

Meanwhile, securitisation volume in India surged nearly 70% year-on-year to around ₹35,000 crore in the first quarter this fiscal, primarily because of increased economic activity, rating agency Crisil says in a report.

"The base effect caused by low volumes last fiscal due to second wave of the pandemic also played a part. Q1 volumes this fiscal even surpassed that seen in fiscal 2019 but remained lower than that witnessed in fiscal 2020," the rating agency says.

Volumes in the first quarter could have been even higher but for the rising inflation and higher interest rates that have spawned caution over the repayment ability of borrowers, and divergent yield expectations among originators and investors, Crisil notes.

"More than 80 non-bank entities being present in the market in the first quarter, up from around 50 last fiscal, indicates strong comfort originators have with the securitisation process. Market activity in the past quarter also reflected the diversity of various asset classes across secured and unsecured loan categories," says Krishnan Sitaraman, senior director and deputy chief ratings officer at Crisil Ratings.

Mortgage-backed securitisation (MBS) loans comprised around 45% of quarterly volume compared with 53% in the corresponding period of the previous fiscal. Asset backed securitisation (ABS) comprised the balance.

"Until now, banks were the dominant investors in securitisation. Others, including foreign investors, may be drawn by the stable performance of past pools and be willing to experiment with innovative structures and newer asset classes," says Rohit Inamdar, senior director, Crisil Ratings.

Going ahead, securitisation may become a key funding source for non-banks focusing on loan book growth by increasing disbursements after a prolonged slowdown, Inamdar adds.