Yes Bank’s deal to sell its stressed assets book worth ₹48,000 crore to JC Flowers has come under scrutiny. On Friday, the Delhi High Court (HC) asked the Government, Reserve Bank of India (RBI) and Securities Exchange Board of India (SEBI) to respond to former Rajya Sabha MP Subramanian Swamy’s PIL seeking an investigation by a committee of experts into the transfer of Yes Bank’s stressed assets to JC Flowers.
businessline had reported earlier that there was a bitter battle between PE majors JC Flowers and Cerberus Capital to grab the ₹48,000-crore stressed assets book of YES Bank. While Cerberus had offered the entire payment based on the book value to YES Bank upfront, JC Flowers will be paying only 15 per cent upfront of the ₹12,000-crore offer it made. The remaining 85 per cent payment by JC Flowers will be staggered over the years depending on the recoveries that it makes.
A division bench of Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad also sought a response from Yes Bank and the asset reconstruction company. The PIL raised questions over Yes Bank’s silence on the Cerberus offer. JC Flower had no meaningful presence in India to justify the transfer of the stressed assets portfolio of Yes Bank to the tune of ₹48,000 crore.
The petition said Yes Bank did not disclose the 15:85 structure till December 2022. By then, time the deal with JC Flower had been consummated, and consideration for the portfolio sale was already exchanged. Also, almost entire stressed asset management team, including senior management, moved to JC Flower ARC, and the bank also did not disclose the various fee structures it agreed with JC Flower ARC i.e. management fee of 1.5% payable per annum, upside sharing with JC Flower upon recovery from stressed assets. Net recovery of Yes Bank vide sale of the entire Portfolio of identified stressed assets is minuscule after adjusting for the management fee, and reinvestment into JC Flower.
The PIL seeks direction to formulate “proper and comprehensive guidelines” under the recommendations of the committee of experts to check similar agreements or transactions in future.
“This transfer is linked to another deal in which Yes Bank has obtained a stake of up to 19.9 percent in the company of JC Flowers,” PIL said. Swamy has said in his PIL that a “growing rot” was prevalent in the private banking sector, which has been further accelerated by the “perpetual decay” of corporate governance and ethical standards in the private banking industry and asset reconstruction company.
“This is a growing case of concern as there is apparent conflict of interest between the functioning of banks & ARCs. The situation is further complicated, when motivated and malafide transactions between the two are allowed to stand as the regulator (RBI), fails to act & enforce its own guidelines causing significant loss of public monies,” the petition states. Submitting that Non-Performing Assets (NPAs) are a growing concern for private sector banks.
“The transfer of a distressed asset portfolio worth ₹48,000 crores to JC Flower ARC through these transactions app appears to be a blatant attempt to circumvent laws and regulations in favor of Respondent No.5. This not only undermines the trust of the public funds for the benefit of one company,” the PIL said.