Japanese Banking Giant SMBC Pursues Landmark M&A Deal in the Banking Sector
Japanese banking powerhouse Sumitomo Mitsui Banking Corp (SMBC) is on the verge of acquiring a significant stake in Yes Bank, following extensive negotiations. If finalized, this acquisition will lead to an open offer for an additional 26% stake in Yes Bank, positioning SMBC as the bank’s largest shareholder. Recent high-level discussions in Mumbai between SMBC executives and key stakeholders, including the State Bank of India (SBI), have been pivotal in moving the deal forward.
Details of the Acquisition
The potential acquisition of Yes Bank by SMBC comes after a period of recovery for the Indian lender, which was previously in crisis. The Reserve Bank of India (RBI) and SBI orchestrated a rescue operation in 2020, which allowed Yes Bank to stabilize. Currently, SBI holds a 24% stake in Yes Bank and has been actively seeking a new owner. The outcome of this deal remains uncertain, particularly regarding the positions of other significant stakeholders, including HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank, and LIC, who collectively own 11.34%. Private equity firms Advent International and Carlyle also hold stakes of 9.20% and 6.84%, respectively.
If SMBC successfully acquires a 51% stake, it would mark a historic moment in India’s banking sector, surpassing SMBC’s previous investment of $2 billion in the country. The ongoing discussions are crucial as they aim to finalize the terms of the deal, with SBI and SMBC working closely to ensure a smooth transition. The RBI has reportedly provided verbal assurances to SMBC regarding the retention of majority ownership, despite existing foreign direct investment regulations that limit individual foreign bank stakes to 15%.
Yes Bank’s Recovery and Future Prospects
Yes Bank has shown remarkable improvement since its rescue, reporting a net profit of Rs 2,406 crore for FY25, a staggering 93% increase year-on-year. The bank’s gross non-performing assets (NPAs) have significantly decreased to 1.6%, with net NPAs dropping to 0.3%. This is a stark contrast to the levels seen during its crisis in FY20, when gross NPAs were at 16.8% and net NPAs at 5%. Additionally, Yes Bank’s deposits have surged to Rs 2.85 lakh crore, nearly tripling since the crisis.
Prashant Kumar, Yes Bank’s CEO, has expressed a commitment to maintaining a balanced portfolio, aiming for retail and SME (small and medium enterprises) lending to constitute around 60% of the bank’s operations. Following the bank’s positive performance in the March quarter, Kumar highlighted the steady improvements across core operating metrics and the strategic goal of enhancing profitability.
Regulatory Considerations and Future Plans
The RBI remains firm on maintaining a 26% cap on voting rights for foreign investors, which adds a layer of complexity to the acquisition process. However, the central bank has made exceptions in the past for distressed banks, which could play a role in SMBC’s plans. The Japanese bank has already established India as a separate operating region, with Rajeev Kannan, SMBCโs co-head of Asia Pacific, set to report directly to Tokyo.
Officials have indicated that the long-term vision includes merging SMBC India with Yes Bank, although this is still in the distant future. The current focus is on finalizing the deal structure, with both SBI and SMBC working diligently to ensure that all regulatory requirements are met. An announcement regarding the acquisition is anticipated soon, as both parties are keen to move forward.
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