SMBC Nears Acquisition of YES Bank Stake in Landmark Private Bank M&A Deal
In what promises to be India's biggest private bank merger and acquisition (M&A) transaction, Japanese banking giant Sumitomo Mitsui Banking Corporation (SMBC) is nearing the acquisition of a controlling stake in YES Bank. The deal, facilitated at arm's length with consultation from State Bank of India (SBI) its largest shareholder with a 24 percent holding represents a key milestone in the bank's turnaround process since its rescue in 2020.
In a report by The Economic Times, for several months now, negotiations between SBI, SMBC, and other interested parties have been in progress and are now at an advanced stage of being concluded. Top SMBC leadership, including Asia-Pacific Co-Head Rajeev Kannan, are said to have traveled to Mumbai last week for the last round of negotiations. Even the Reserve Bank of India (RBI) has been informally approached and has reportedly verbally assured the deal.
If successful, the deal would be SMBC's biggest investment in India, trumping its $2 billion purchase of Fullerton India Credit in 2021. SMBC would likely buy a majority stake, perhaps around 51 percent, in YES Bank. According to Indian takeover rules, the move would require an open offer for a further 26 percent of equity, which could trigger a wider change in the ownership of the bank.
Though the RBI guidelines limit the voting rights of bank shareholders to 26 percent, SMBC has been reassured by the regulator that it can hold on to a majority economic stake. Precedents like Fairfax taking a stake in Catholic Syrian Bank and DBS acquiring Lakshmi Vilas Bank indicate that such exceptions would be made in similar cases.
If the transaction materializes, SMBC will end up being the biggest shareholder in YES Bank. But it is unclear if other significant institutional investors like HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank, LIC, Carlyle, and Advent International will keep or sell their stakes.
Current MD and CEO at YES Bank, Prashant Kumar, has to finish his term in October. After acquisition, SMBC will likely make new leadership nominee suggestions to RBI for approval. In a tactical pre-deal move, SMBC has earmarked India as a standalone operating region, and Rajeev Kannan is now reporting to the Tokyo HQ.
YES Bank has made good progress in recent times, and the deposits increased to Rs 2.85 trillion as of FY25, an increase of 2.7 times since March 2020. The retail and SME segment continued to remain in focus areas of the bank that it has resolved to retain 60 percent of its loan book.
One government official, in close connection to the deal, said, "Eventually, the plan is to merge the two entities SMBC India and YES Bank but that is still far out".
