Sumitomo gets RBI nod to pick 51% in Yes Bank

SMBC will either buy less than 26% in Yes Bank and do a merger through a share swap, or may buy up to 26% and launch an open offer, the people said. Currently, State Bank of India (SBI) and other lenders hold 33% in Yes Bank. SMBC’s voting rights in Yes Bank will be capped at 26%.

“RBI has given SMBC the go-ahead for acquiring a majority stake and running Yes Bank,” one of the two people cited above said on the condition of anonymity. “This happened a few weeks after SBI and other bank shareholders agreed to sell their stakes in Yes Bank to Sumitomo Mitsui. SMBC will buy up to a 51% stake in Yes Bank at the market price. RBI has to keep every existing stakeholder’s interest in mind,” the person said, adding SMBC may pay in cash for the initial stake purchased.

The transaction paves an exit path for SBI and other banks brought in to save Yes Bank five years ago, and ushers in a new owner who can help India’s sixth-largest private lender compete better with nimble rivals.

Also read | Yes Bank recasts portfolios, four senior execs to leave

SMBC may increase its stake to 51% in phases after acquiring an initial stake, the people cited above said. 

Apart from SBI, other Yes Bank shareholders include Axis Bank, Kotak Mahindra Bank and HDFC Bank. All of them will sell some of their shares partly to SMBC in the first round, and the remaining shares in the next rounds, the two people said.

SMBC has appointed JPMorgan and J Sagar Associates as financial and legal advisers for the transaction, a third person said. The Japanese bank declined to comment. Emails to spokespersons of RBI, as well as SBI, Axis Bank, Kotak Mahindra Bank and HDFC Bank who own stakes in Yes Bank went unanswered.

“Yes Bank requires a strategic promoter with robust management control to ensure long-term stability and sustainable growth,” said Asutosh Mishra, head of research, Ashika Stock Broking Ltd. “An exit for SBI and other major shareholders can only be effectively achieved by bringing in a committed strategic shareholder, which is crucial for the bank’s enduring strategic stability. In today’s competitive and rapidly evolving banking sector, strong promoter leadership is essential to restore market confidence, enhance governance standards, and guide Yes Bank through its next phase of transformation,” Mishra added.

Read this | Four years since Yes Bank’s rescue, RBI greenlights an exit plan for its saviours

Besides SMBC, Japan’s Mizuho Bank and Emirates NBD were also reported to be in the race to buy Yes Bank.

RBI is also pushing SMBC to set up a wholly owned subsidiary in India, a model which would shield its Indian operations from any crisis the foreign bank may encounter. This also ensures better regulation.

While some of the foreign banks in India operate as local branches of their foreign owners, others banks set up wholly owned subsidiaries for Indian operations, a model preferred by the regulator. Since 2013, foreign banks setting up such subsidiaries are treated on par with local banks, and allowed to acquire Indian banks. Such banks can also open branches more freely.

In 2020, Yes Bank was rescued by a group of banks led by SBI, in an operation supervised by the RBI. This came after the bank fell short of liquidity requirements, and its founder and CEO Rana Kapoor failed to secure the regulator’s nod to continue. The SMBC transaction gives the bank strategic stability at the time of exit of its shareholders. Yes Bank has been without a promoter since Kapoor’s exit in 2019.

Also read | Why this Japanese group is the favourite to win Yes Bank’s hand

Various banks collectively hold 33.74% in Yes Bank, including SBI (23.99%), HDFC Bank (2.75%), ICICI Bank (2.39%), Kotak Mahindra Bank (1.21%), and Axis Bank (1.01%). SBI has been looking to sell its shares ever since a three-year lock-in period ended in 2023. SBI had initially acquired a 49% stake in Yes Bank. It has around 1,200 branches and assets worth over ₹4 trillion.

The SMBC-Yes Bank deal is on similar lines to the stake sale at Catholic Syrian Bank, where RBI allowed a single investor to hold a majority stake with voting rights capped at 26%. The central bank has set this cap to ensure that no single entity gets excessive powers to influence any business decision or block or pass any resolution without the consent of others.

In August 2024, Mint had reported about SMBC’s global CEO Akihiro Fukutome’s meeting with officials of RBI and SBI. 

Earlier, SMBC was not agreeable to the 26% voting cap as it would be treated as a mere portfolio investment on its books, Mint had reported in September 2014.

And read | This Japanese lender’s global head is visiting India to discuss buying Yes Bank stake

SMBC, which began its India operations in 2013, has three branches across New Delhi, Mumbai and Chennai. It has obtained approval for a branch in the Gujarat International Finance Tec-City (GIFT City). Its India offices are supported by an offshore team in Singapore to extend funding support to Indian companies.

Sumitomo Mitsui Financial Group (SMFG) is the holding company of SMBC, offering commercial banking, leasing, securities and consumer finance. SMFG’s total assets stood at ₹162 trillion with a net profit of ₹44,900 crore as on 31 March.

In November 2021, SMFG acquired a 74.9% stake in the non-banking finance company SMFG India Credit Co. (SMICC) from Fullerton Financial Holdings.