Japan's SMBC Revives Talks with SBI for Controlling Stake in Yes Bank
In a significant development for India's banking sector, Japanese financial powerhouse Sumitomo Mitsui Banking Corporation (SMBC) has reentered negotiations with State Bank of India (SBI) to acquire a controlling stake in Yes Bank. This renewed interest could reshape the ownership structure of one of India's prominent private sector lenders.
Deal Structure Takes Shape
According to market sources, the potential transaction has been restructured compared to previous discussions that began in 2024. The current framework involves SBI divesting up to 20 percent of its 23.97 percent stake in Yes Bank to SMBC. Additionally, the Japanese financial giant is expected to infuse fresh capital equivalent to approximately 6-7 percent stake.
Following this initial transaction, SMBC plans to launch an open offer with the aim of increasing its total stake to 51 percent, effectively taking control of the Mumbai-headquartered bank. Industry experts suggest this multi-stage approach could help navigate regulatory requirements while ensuring a smooth transition of control.
Exit Strategy for Current Investors
The proposed deal structure creates a pathway for several existing stakeholders to potentially exit their investments:
- SBI is likely to tender its remaining shareholding through the open offer
- Other banking investors including Axis Bank, Kotak Mahindra Bank, ICICI Bank, and HDFC Bank (collectively holding 7.36 percent) may also exit
- Private equity firms Advent International (9.2 percent stake) and Carlyle (6.84 percent stake) are expected to participate in the open offer
- Life Insurance Corporation of India currently holds a 3.98 percent stake in Yes Bank
"This is the structure that has been presented to SMBC," revealed a banker familiar with the negotiations, noting that the Japanese company's response is still pending.
Regulatory Considerations and Control Mechanics
The current talks appear to have addressed some of the regulatory hurdles that prevented earlier deals from materializing. Previous negotiations with both SMBC and Mitsubishi UFJ Financial Group (MUFG) reportedly stalled over voting rights limitations.
Under Indian banking regulations, voting rights for promoters in private sector banks are capped at 26 percent, regardless of actual ownership percentage. This regulatory constraint had been a sticking point in earlier discussions.
"SMBC is reconciled to the fact that this cannot be changed and has yet shown interest in Yes Bank," explained a banking industry source. While SMBC may consolidate Yes Bank at its Japanese parent level with a 51 percent shareholding, certain dispensations might be required in its home jurisdiction.
Operational Control Framework
To establish effective operational and management control despite the voting rights limitations, SMBC may seek to nominate directors to key committees of Yes Bank's board. Particular emphasis is likely to be placed on representation in the nomination and remuneration committee (NRC), which plays a crucial role in appointing senior management, including the CEO.
Industry observers note that once SMBC responds to the proposed terms, the deal will be presented to regulators for further consideration. If the Japanese financial institution accepts the shareholding and voting rights framework, an agreement could potentially be finalized within the current fiscal year.
SBI's Strategic Positioning
The timing of these renewed talks comes shortly after SBI's announcement of a substantial Rs 25,000-crore equity fundraising plan on May 3. While SBI Chairman CS Setty indicated the bank would consider all options for its fundraising, he refrained from providing specific timelines, stating, "That will depend on our business needs and market conditions."
This potential divestment by SBI could represent a strategic realignment of its investment portfolio while potentially realizing value from its Yes Bank stake, which it acquired as part of the bank's reconstruction scheme several years ago.
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