Yes Bank pauses CEO search pending RBI nod to Sumitomo deal

The Japanese lender announced in May that it will acquire a 20% stake in Yes Bank for ₹13,482 crore, in the largest cross-border investment in the Indian banking sector. SMBC is a wholly-owned subsidiary of Sumitomo Mitsui Financial Group, the second largest banking group in Japan with assets of $2 trillion at the end of December.

“The board had started the process and gone quite far with it before the deal, but some members of the board did not concur with it since the new investor would also like to be part of the decision,” one of the two people cited above said on the condition of anonymity. The Yes Bank board had begun the hiring process even before the deal with Sumitomo Mitsui Banking Corp. was announced in May.

The bank’s current CEO Prashant Kumar was brought in to steady the ship as part of a central bank-backed revival plan in 2020. Kumar, whose term ends in October this year, recently got an extension to stay for six months more, or until a successor is appointed.

According to the person cited above, the Reserve Bank of India (RBI) has also been kept informed, and the regulator too feels the search should resume once SMBC deal is cleared. The person said that therefore, RBI allowed a six-month extension to Kumar, instead of the usual one-three years that the regulator gives.

“The RBI is of the opinion that if and when it clears SMBC’s bid for a stake in Yes Bank, the board should take the opinion of the new shareholder on this issue. It can then decide to send a set of names to the central bank,” said the first person cited above.

A spokesperson for Yes Bank said the bank has “no comments to offer”. Emails sent to RBI and SMBC remained unanswered.

A top-tier executive search firm tasked to find the new CEO has been asked to pause the search, two other industry officials said.

“The Japanese company wants to weigh in, and therefore, the hiring mandate has been put on hold. This is one of the reasons why the present CEO got an extension,” said one of the executives, who did not want to be named.

Another top executive from the search industry confirmed the development, but added that there is no clarity whether a new search mandate will be rolled out or the search firm tasked earlier will start work again once there is more clarity. The result could be a lengthy wait for a new CEO.

Search firms often spend months to find a suitable CXO candidate. In the last couple of years, searches for suitable corner office candidates have taken longer than usual, with executives taking as long as a year to complete the process. Geo-political uncertainties, hesitation by candidates to start a new role, companies asking for multiple rounds of panel interviews so that no one person becomes the fall guy in case the hiring goes wrong, are some of the reasons for the long time taken.

Meanwhile, SMBC is also looking to increase its holding in Yes Bank over time, even as its voting rights are expected to be capped at 26%. According to the first person, the bank has already applied to RBI, seeking approval for its 20% stake buy and is keen to take on more equity in the private sector at a later date. The deal has rekindled hopes of greater foreign participation in the domestic sector.

Rating agency Fitch believes the deal could lead to a wave of foreign investment in Indian lenders, if RBI approves the deal and sets a precedent. It said in a statement on 27 May that India’s foreign investment norms cap voting rights for investors in banks at 26% and investments by financial institutions in Indian banks at 15%, which have deterred such stake sales. Foreign banks have a 3% share in India’s loans, as compared to 52.3% and 40% commanded by public sector and private sector banks, respectively, at end-March, showed data from RBI.

Although RBI had not officially indicated its stance on greater access to foreign investors, news reports suggest that the regulator is examining such a proposal.

Citing a “source familiar with the central bank’s thinking”, Reuters reported on 3 June that RBI would be “more open to letting regulated financial institutions own bigger stakes, with approvals on a case-by-case basis, and to certain rule changes that could address disincentives for foreign acquisitions.”