Yes Bank has captured the attention of India’s financial sector with the news that Japan’s Sumitomo Mitsui Banking Corporation (SMBC) plans to acquire a 20% stake in the private lender. The deal is expected to be valued at around ₹13,400 crore, making it the largest cross-border investment in the Indian banking industry to date.
The deal was concluded earlier today, as reported by SMBC, the second-largest Bank in Japan and a subsidiary of Sumitomo Mitsui Financial Group. As part of the deal, the State Bank of India (SBI) and seven other private banks that financially supported Yes Bank during its 2020 restructuring will divest a 20% stake to SMBC. SBI alone transfers a 13.19% stake, with the other banks contributing 6.81% to the remaining stake.
In an interview with Yes Bank’s Prashant Kumar, the CEO indicated that SMBC is anticipated to retain at least a 20% share in the Bank going forward. Kumar reinforced that SMBC would have capital commitment participation in future capital raises, and the Japanese Bank has no plans to allow its holding to slip below this threshold. However, regulatory SMBC’s stake will likely be capped at just above 20% due to Indian law imposing further open offer and promoter classification restrictions.
The investment is seen as a positive for Yes Bank’s stability and growth prospects. Moody’s, the global rating agency, considers the investment “credit positive” as it deems the long-term strategic support and governance that SMBC’s investment will bring to be beneficial. As part of the agreement, SMBC will have the right to name two non-executive directors to the board of Yes Bank, while SBI’s representation will decrease.
Industry observers believe SMBC’s move might enable further collaboration between the two banks and trigger additional consolidation within the industry. There is speculation that SMBC intends to merge its Indian non-banking subsidiary, SMFG India Credit, with Yes Bank to meet compliance needs and increase its presence in the Indian market.
Final regulatory approvals from the Reserve Bank of India and the Competition Commission of India are still pending. Market reaction has been bullish. Yes, bank shares have increased by almost 35% over the last two months, as investors expect stronger growth and better governance with the strategic partnership from SMBC.
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