MUMBAI: Japanese banking giant Sumitomo Mitsui Banking Corporation (SMBC) is reportedly in advanced discussions to acquire a significant stake in India’s Yes Bank.
If finalised, this deal could mark SMBC’s largest investment in India to date and potentially reshape the landscape of India’s private banking sector
Yes Bank’s journey
Yes Bank, once a prominent private sector lender in India, faced a severe crisis in March 2020 due to mounting bad loans and governance issues.
The Reserve Bank of India (RBI) intervened with a restructuring plan, leading to a consortium of Indian financial institutions, including State Bank of India (SBI), ICICI Bank, HDFC Bank, Kotak Mahindra Bank, Axis Bank, and Life Insurance Corporation of India (LIC), infusing capital to stabilise the bank.
Post-restructuring, SBI emerged as the largest shareholder with a 24 per cent stake.
The potential deal with SMBC
According to reports, SMBC is in talks to acquire a controlling stake in Yes Bank, possibly up to 51 per cent. Such an acquisition would necessitate an open offer for an additional 26 per cent stake under Indian regulations, potentially making SMBC the majority shareholder.
This move aligns with SBI’s reported intention to divest its stake in Yes Bank, seeking a long-term strategic investor to take over
If successful, this acquisition would surpass SMBC’s previous major investment in India, which was the $2 billion purchase of a 74.9 per cent stake in Fullerton India Credit in 2021.
It would also signify a significant entry of a foreign bank into India’s private banking sector, which has seen limited foreign ownership due to regulatory constraints.
Regulatory considerations
While the RBI has reportedly given verbal assurances regarding the deal, formal approvals are pending. Notably, under current RBI regulations, even if SMBC acquires a majority stake, its voting rights would be capped at 26 per cent.
This limitation is designed to prevent excessive control by a single entity and ensure diversified ownership in Indian banks.
Following the news, Yes Bank’s shares experienced a surge, reflecting investor optimism about the potential deal. However, Yes Bank issued a clarification stating that discussions with potential investors are preliminary and speculative, emphasizing that no definitive agreements have been reached.
The bank reiterated its commitment to exploring opportunities that enhance shareholder value but cautioned against drawing conclusions from ongoing exploratory talks.
Implications
A successful acquisition by SMBC would not only provide Yes Bank with a robust capital base and international expertise but also signal increased foreign interest in India’s banking sector.
It could pave the way for more foreign investments, especially as Indian banks seek to strengthen their capital positions and expand their global reach.
However, the deal’s success hinges on navigating regulatory approvals, aligning with RBI’s ownership norms, and addressing any concerns from existing stakeholders. If these challenges are surmounted, the SMBC-Yes Bank deal could become a landmark transaction in India’s banking history.
