Sumitomo deal gives clarity on SBI’s stake: Yes Bank CEO Prashant Kumar

One of the bank’s overhangs was the fate of State Bank of India’s (SBI) stake in the bank, and that has been taken care of, Kumar said in an interview at his office overlooking the Mumbai airport’s runway.

Moody’s Investors Service has a long-term rating of Ba3 and a positive outlook on Yes Bank.

Following a deterioration in Yes Bank’s financial position, the Reserve Bank of India (RBI) superseded the board in March 2020. Soon after, a clutch of banks led by SBI rescued Yes Bank. Now, a deal with SMBC, where the Japanese lender will acquire a 20% stake for ₹13,482 crore, would allow a partial exit to SBI and others. Kumar expects all approvals to come in by September.

Also read | Japan’s SMBC succeeds in its pursuit of Yes Bank; to acquire a 20% stake

Meanwhile, the second objective of this deal, Kumar said, was that SBI’s stake, albeit partly, is slated to be replaced by a strategic investor, which is the second-largest banking group in Japan and the 15th largest globally. “(It is a) well-respected group and always has a very long-term view of their investments anywhere in the world,” said Kumar, who visited Japan last year to discuss the deal.

The final objective, he said, centred around how the deal assuaged concerns that rating agencies have raised in the past. Kumar said that rating agencies had raised concerns about what would happen to SBI’s shareholding in the bank.

Ratings agencies queries

Rating agencies also questioned Yes Bank’s management on its profitability trajectory, which Kumar said was answered by the lender’s financials. Another concern of rating agencies was whether existing shareholder banks would be able to infuse more if the bank wanted to raise capital.

“I think the possibility of rerating the bank is absolutely there. This is what we believe,” said Kumar, whose term as the chief executive comes up for renewal in October. He was appointed in March 2020 and was reappointed for three years in October 2022.

In March 2024, Mint reported that Yes Bank was looking for a new promoter.

Kumar said on Monday that for a large stock like Yes Bank, the options are only in terms of either M&A (mergers and acquisitions) with a domestic bank, or bringing a strategic investor into the bank.

Also read | Wanted: A new owner for Yes Bank

“So, we started this exploratory journey from a lens of finding a way out for the banks to exit. (There were) very limited options because industrial houses are not allowed to invest in banks,” he said.

He said another option could have been a private equity (PE) investor, but PE always has a short-term objective, while Yes Bank was looking for a long-term strategic investor.

“Maybe in 2022, when we got the money from the PEs, it was more in terms of survival capital,” he added. In December 2022, the RBI had given conditional approval to private equity investors Carlyle Group and Advent International to acquire up to 9.99% each in private lender Yes Bank.

M&A deal

Kumar said that entering into an M&A deal with a domestic bank would have meant meeting the aspirations of both entities. He said that all M&As, whether small or large, also come with their own pain points in terms of human resources integration and tech integration, and usually take between two and three years.

“Some of the investors had shown interest, and we entered into non-binding deals. Then there was due diligence, and there were certain expectations from those investors, some of which did not meet regulatory guidelines,” he said.

Mint reported on 9 May that SMBC will look to increase its holding in Yes Bank over time, eventually triggering an open offer for additional shares, according to two bankers aware of the matter. However, SMBC’s voting rights will be capped at 26%, as per Reserve Bank of India regulations, it added.

Also read | Japan’s Sumitomo Mitsui Banking gets RBI nod to pick 51% in Yes Bank

Analysts are somewhat sceptical about how the deal will pan out for SMBC.

“We are unsure if SMBC would be able to raise its stake further by buying out at a later date or through subsequent equity infusion,” analysts at Kotak Institutional Equities said in a note on 12 May.

The note said that the transaction does not change the business view of Yes Bank, but removes the uncertainty of a buyer. “While we acknowledge that the transaction is set at a price higher than our fair value, we are constrained to view this transaction from the viewpoint of a minority shareholder and a wider spectrum of choices available to invest in the market,” it said.

That said, the bank has put on hold prior discussions on any inorganic opportunities till the deal is done. In June 2023, Kumar told Businessline that Yes Bank started due diligence on a few non-banking financial companies in the microfinance space (NBFC-MFIs).