Yes Bank Crisis to Resolve? Here's Everything You Need to Know as Sumitomo Steps In

Over half a decade has passed since Yes Bank's former CEO, Rana Kapoor, was arrested in a bank fraud case involving faulty loan practices. The entire fiasco pushed the Reserve Bank of India (RBI) to intervene and form a consortium of lenders to address the Yes Bank liquidity issues.

The Union Cabinet eventually approved a rescue plan for the troubled lender, backed by the State Bank of India (SBI).

During this period, Yes Bank’s shares have faced a tough road, slipping more than 33% on the National Stock Exchange. Yet, amidst all this chaos, discussions around the bank's shareholding structure have never faded.

Recently, multiple reports revealed that Sumitomo Mitsui Banking Corporation (SMBC), one of Japan's leading financial institutions, is in talks to secure a 24% stake in Yes Bank. This prospective deal might be SBI's exit strategy as well, since the lock-in period has long been ended.

This pushed Yes Bank's stock sky-high on the bourses, up by nearly 10% on Tuesday. Interestingly, this deal has been present on the table for months and a big reason for this slow progress can be blamed on regulatory play related to ownership.

Besides SBI, Yes Bank’s rescue plan included a consortium of major lenders such as HDFC Bank, ICICI Bank and Kotak Mahindra Bank. While SBI's desperation to exit Yes Bank has been quite visible, whether other lenders will pick a similar course in the latest development remains unclear.

As per sources cited in a report by Mint, SMBC is aiming to buy a majority stake in the bank, but the Japanese player's voting rights will remain capped at 26%. While some reports indicate an optimistic view that the RBI has already given SMBC the green light to control and acquire a majority stake in Yes Bank, a good part of it remains speculative.

Will SBI get an exit?

At least that's what it seems like. Sources cited in multiple reports signal that SMBC is aiming to increase its overall holding to 51% in Yes Bank through direct purchase from SBI and offer through the market. On top of this, SMBC might also infuse fresh capital into the bank to further increase its holding, which will also support and consolidate Yes Bank's growth.

"This would be a major change in India's private banking sector. But the takeover and raising stakes are pending regulatory approvals, and the final authority rests with the RBI. It is anticipated that RBI might give exemption to SMBC to finally raise its stakes to 51%," said Vishnu Kant Upadhyay, AVP- research and advisory, Master Capital Services.

Yes Bank's Shareholding Pattern

Currently, SBI and other lenders collectively hold a 33% stake in Yes Bank. Among these lenders, SBI leads the pack with a 23.97% stake, followed by HDFC Bank (2.75%), ICICI Bank (2.39%), Kotak Mahindra Bank (1.21%) and Axis Bank (1.01%).

In 2020, SBI had invested Rs 6,050 crore to acquire a 48% stake in Yes Bank as part of the broader rescue plan. But SBI's stake was eventually reduced after Yes Bank's follow-on public offer.

If the proposed deal with Sumitomo Mitsui goes through, it could mark a significant structural shift in the bank’s ownership.

How is Yes Bank set to gain?

For Yes Bank, a lot seems speculative as the discussions are still in the preliminary stage. It is also worth mentioning that talks around SMBC buying a controlling stake in Yes Bank were well-present last year as well.

"The Bank is on a growth trajectory and routinely explores opportunities with various stakeholders, which are aimed at enhancing shareholder value. However, such discussions are preliminary and do not warrant a disclosure under Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) regulations, 2015, at this stage," Yes Bank said in a recent exchange filing.

However, if the deal goes through, SBI might gain more credibility with the entry of a foreign player, as per analysts.

"As the majority owner through SMBC, Yes Bank could gain on a number of dimensions, including good governance, more credibility to better market perception. The takeovers could even trigger new opportunities to do more business for the bank, ascribe it new horizons, and much-desired long-term focus and belief towards sustainable development," Upadhyay added.