Yes Bank Revival: Stake Sale Fuels Record Tax-Free Profits for Indian Banks

The upcoming sale of stakes in Yes Bank by the State Bank of India (SBI) and a consortium of private banks is poised to deliver a significant tax-exempt windfall for these financial institutions. This high-profile transaction, amounting to approximately Rs 13,483 crore, marks a noteworthy milestone as Japan’s Sumitomo Mitsui Banking Corporation (SMBC) acquires a 20% stake in Yes Bank.

 

Key Highlights of the Stake Sale and Tax Exemption

 

SBI and seven private banks, including HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank, IDFC First Bank, Federal Bank, and Bandhan Bank, have agreed to sell a combined 20% stake in Yes Bank to SMBC at Rs 21.50 per share.

 

SBI will be divesting 13.19% of its 24% stake, amounting to approximately Rs 8,889 crore, while the remaining banks collectively sell 6.81%, generating Rs 4,594 crore.

 

Crucially, under the Yes Bank Reconstruction Scheme, 2020, these proceeds are exempt from the standard long-term capital gains tax rate of 12.5%, resulting in a substantial tax savings.

 

This exemption was incorporated into the reconstruction scheme to incentivize banks’ participation during Yes Bank’s financial turnaround.

 

The stake sale proceeds will be booked as “other income” in the banks’ financial accounts, providing a significant boost to their earnings during the September quarter.

 

Strategic Significance and Regulatory Approvals

SMBC’s entry as a strategic investor marks the largest-ever investment by a Japanese bank in India.

 

SMBC has secured regulatory approvals from the Reserve Bank of India (RBI) and the Competition Commission of India to raise its stake up to 24.99%.

 

The Japanese bank is also in talks to infuse an additional Rs 16,000 crore into Yes Bank through a mix of debt and equity capital, further strengthening the bank’s capital position.

 

Market and Financial Implications

This stake sale offers relief to the selling banks amid an environment of expected pressure on net interest margins due to recent policy rate cuts and a surge in bond yields.

 

The tax exemption enhances the attractiveness of the transaction, effectively increasing the net earnings from the stake sale.

 

SBI, reporting a net profit of Rs 19,160 crore in Q1 FY26, stands to gain significantly from the sale proceeds, supporting its financial robustness.

 

Investor Outlook and Future Prospects

Investors view this deal positively, as it signifies renewed confidence in Yes Bank’s revival and growth prospects following its rescue.

 

The infusion from SMBC and stake sale transactions are expected to bolster Yes Bank’s operational and capital capabilities.

 

The financial markets are likely to monitor subsequent capital infusion and strategic developments closely for sustained momentum.

 

Summary

The sale of Yes Bank stakes by SBI and private banks to SMBC is set to generate a Rs 13,483 crore tax-free income windfall, underpinned by the Yes Bank Reconstruction Scheme’s capital gains exemption. This landmark transaction not only ushers in a major foreign investor into India’s banking sector but also strengthens Yes Bank’s financial position for future growth.

 

Source: Economic Times, Business Today, News18, ScanX Trade