Yes Bank’s New Power Player: SMBC Secures Front Row Seat for All Capital Calls

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Sumitomo Mitsui Banking Corporation (SMBC) has taken a historic step in Indian banking by purchasing a 20 percent stake in Yes Bank and emerging as its largest shareholder. In a key move, SMBC has received pre-emptive rights to continue its pro-rata shareholding in any future capital issue by Yes Bank. This will see that SMBC will be able to maintain its percentage ownership, while the bank wants to raise further funds in the future.

This strategic deal is a part of a larger transaction in which SMBC acquired shares from State Bank of India (SBI) and a group of private banks for around ₹13,482 crore. The deal is pending regulatory approvals from the Reserve Bank of India (RBI) and the Competition Commission of India (CCI). Once finalized, SMBC will be able to appoint two non-executive directors on Yes Bank's board, enhancing its role in the bank's governance and strategy even more.

Deal's key points:

SMBC will be Yes Bank's largest shareholder at 20 percent, followed by SBI at 10.8 percent.

The Japanese bank's pre-emptive rights enable it to hold its stake in future capital issues, safeguarding its investment and role.

The transaction is likely to improve the credit rating, global governance standards, and brand equity of Yes Bank, investor presentations say.

The transaction is likely to take Yes Bank into its next growth and profitability phase by harnessing SMBC's cross-border know-how and access to Japanese and international corporates.

SBI and other private sector banks, who made the investment when Yes Bank was rebuilt in 2020, will see substantial returns, with SBI alone making a substantial profit on the sale.

Market watchers note that this deal marks a shift in RBI’s approach to foreign ownership in Indian banks, especially given that the 20 percent stake exceeds the usual foreign ownership cap of 15 percent. SMBC’s entry is seen as a vote of confidence in India’s banking sector and is expected to bring long-term strategic benefits to Yes Bank.

Sources: NDTV Profit, Business Standard, Reuters, Moneycontrol, The Indian Express