SMBC Eyes Big Bite of YES Bank in Strategic Stake Move

The massive Japanese bank Sumitomo Mitsui Banking Corp. (SMBC) is in advanced negotiations to purchase a sizeable portion of YES Bank. The State Bank of India (SBI), which owns 24% of YES Bank and has been looking for a long-term buyer since the bank's turnaround since its bailout in 2020, is coordinating the deal.

After months of discussion, the talks are now nearing their conclusion. According to reports, SMBC's top executives met with SBI representatives and other important parties in Mumbai last week to negotiate the terms.

The deal, if finalised, will surpass SMBC's $2 billion acquisition of Fullerton India Credit (74.9%) in 2021 as the company's largest investment in India. The Reserve Bank of India (RBI) has not yet received any applications from Sumitomo to purchase stock in YES Bank, according to a media source.

SMBC to Acquire Controlling Stakes

According to Indian regulatory standards, SMBC is anticipated to purchase a majority stake, maybe 51%, which would necessitate an open bid for up to 26% of the bank's ownership. Subject to regulatory approvals, SMBC would gain effective control of YES Bank through the sale of a 51% interest. A media report claims that SBI and SMBC are adjusting the deal structure.

News is on the horizon, though, as the RBI has offered consolation. According to reports, SMBC was "verbally assured" by the Reserve Bank of India (RBI) that it would be permitted to keep the majority of YES Bank. However, the RBI's current standards will continue to cap voting rights at 26%.

Nevertheless, Sumitomo does not currently have an application pending with the RBI to purchase stock in Yes Bank. Previous instances of such exceptions include DBS's purchase of Lakshmi Vilas Bank and Fairfax's acquisition of Catholic Syrian Bank.

If the purchase goes through, SMBC will become the bank's biggest shareholder. Other institutional holders, including HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank, LIC, Carlyle, and Advent International, may or may not leave, though.

Change in Operations

In October, Prashant Kumar, the bank's CEO, will finish his tenure. SMBC will suggest applicants for the position to the central bank if the deal closes. In anticipation of the transaction, SMBC has already established India as a distinct operating zone.

The co-head of SMBC for Asia Pacific, Rajeev Kannan, will now be reporting directly to Tokyo. The goal is to eventually combine SMBC India with YES Bank, but that is still a long way off.

In FY25, YES Bank's deposits reached INR 2.85 trillion, a 2.7-fold increase since March 2020. Future growth is anticipated to be driven by retail and SME loans. We would like to maintain the percentage of retail and SME at about 60%, Kumar stated on the most recent earnings call.