In a significant development within the Indian banking sector, Japan's Sumitomo Mitsui Banking Corporation (SMBC) is reportedly in advanced discussions to acquire a substantial stake in Yes Bank, one of India's prominent private lenders. This move could potentially trigger an open offer for an additional 26% stake in the bank. Currently, SMBC holds no shares in Yes Bank.
The State Bank of India (SBI), which owns approximately 24% of Yes Bank, has been seeking to divest its stake, with SMBC emerging as a primary contender for a majority share. Yes Bank underwent a significant restructuring in March 2020, orchestrated by the Reserve Bank of India (RBI) and supported by a consortium of local lenders, including ICICI Bank, HDFC Bank, Kotak Mahindra Bank, Axis Bank, and Life Insurance Corporation of India, who collectively hold an 11.34% stake.
However, SMBC's ambition to acquire a controlling 51% stake has encountered regulatory challenges. The RBI has expressed reservations about allowing a foreign bank to hold a majority stake in a significant private sector bank like Yes Bank. According to the Banking Regulation Act, voting rights in private sector banks are capped at 26%, and any deviation could set a concerning precedent.
Despite these hurdles, the RBI has, in special cases, shown openness to allowing a foreign entity to acquire up to a 51% stake, provided that voting rights remain capped at 26%. This approach aims to balance the need for foreign investment with the imperative of maintaining control over domestic banking institutions.
SMBC's interest in Yes Bank aligns with its broader strategy to deepen its presence in India's financial sector. The Japanese bank has been steadily expanding its footprint in the country, operating multiple branches and establishing a strong portfolio of investments, including its wholly-owned non-banking finance company, SMFG India Credit Company.
As discussions continue, the outcome will significantly impact the future trajectory of Yes Bank and the broader landscape of foreign investment in India's banking sector.