India’s Yes Bank expects to sell a 20% stake to Japan’s second-largest bank, Sumitomo Mitsui Banking Corporation (SMBC), a wholly owned subsidiary of Sumitomo Mitsui Financial Group, for $1.58 billion, pending regulatory approvals from the Reserve Bank of India (RBI) and the Competition Commission of India.
If successful, the transaction will represent the biggest cross-border M&A deal in India’s financial sector and is likely to be completed by the second quarter of 2025. During the March 2020 Yes Bank crisis, the RBI proposed a reconstruction plan to rescue the bank with the support of the State Bank of India (SBI) and other banks. SMBC will acquire a 13.19% stake from SBI and a 6.81% stake from other institutions, including Axis Bank, Bandhan Bank, Federal Bank, HDFC Bank, ICICI Bank, IDFC First Bank, and Kotak Mahindra Bank, through a secondary stake purchase.
The fact that crisis-stricken Yes Bank is attracting highquality investors to replace SBI and other banks underscores its recovery following the 2020 crisis, giving a boost to the banking sector. SMBC is bullish about the Indian banking sector and is, therefore, aiming to invest for the long term.
After the transaction, SMBC will become the largest shareholder of Yes Bank and will appoint two members to its board. SBI will retain a 10.8% stake in Yes Bank, while other banks will collectively hold only a 2.9% stake. CA Basque Investments, affiliated with the Carlyle Group, and Verventa Holdings, an affiliate of Advent International, will retain 6.8% and 9.2%, respectively. The public will have a 50.26% stake in Yes Bank.
The entry of SMBC establishes a new precedent for future foreign acquisitions in India’s banking sector and enhances corporate governance standards. Furthermore, the deal will facilitate the exchange of goods and services between India and Japan.
Indian foreign investment norms cap voting rights for investors in banks at 26% and investments by financial institutions in Indian banks at 15%, a stumbling block for the entry of foreign investors. A higher cap on voting rights and an increase in investment threshold could encourage foreign investors.
