All About SMBC and Yes Bank's Merger

In early 2020, Yes Bank faced a dramatic collapse due to years of irresponsible lending, mounting bad loans, and corporate governance issues. The bank's deteriorating financial health eroded investor confidence, leading to a sharp fall in its stock price and withdrawal of deposits. In March 2020, the Reserve Bank of India (RBI) imposed a moratorium, capping withdrawals at Rs 50,000 per account and temporarily taking control to prevent a systemic crisis.

SBI's Rescue Operation

To stabilize the situation, the RBI devised a restructuring plan led by the State Bank of India (SBI). SBI infused Rs 7,250 crore into Yes Bank, becoming its largest shareholder. The bailout was supported by other banks (Axis Bank, Kotak Mahindra Bank, ICICI Bank, and HDFC Bank) and financial institutions (LIC), ensuring that Yes Bank could meet its obligations and resume normal operations. This coordinated intervention restored depositor confidence, helped avoid a broader financial contagion, and offered a model for rescuing distressed private sector banks.

The Good News

Yes Bank took a couple of years to clean its books and has started giving good results in the last few quarters. However, for investors, there has not been much progress in terms of share price. However, the recent news around Sumitomo Mitsui Banking Corporation (SMBC) acquiring a controlling stake in the bank is a big positive for the bank and its investors.

Investors should note that the M&A talk first started in 2024 but could not go through. Now, there have been some changes in the deal terms, and the deal may go through. As per reports, SBI (currently holding 23.97% stake) is likely to sell around 20% of its total holding to SMBC. It is also expected that the Japanese giant will infuse fresh capital of 6 to 7%. It may also make an open offer to take its stake in Yes Bank to 51% (majority shareholder).

As of now,  it remains unclear whether other stakeholders such as HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank, LIC, Carlyle, and Advent International will exit or remain invested.

The Challenges

As mentioned above, the SMBC wants 51% controlling and also 51% voting rights in Yes Bank. However, Indian banking laws cap voting rights for promoters in private sector banks at 26%. Despite this, SMBC appears willing to proceed. Previous discussions with SMBC and Mitsubishi UFJ Financial Group (MUFG) fell through last year over the same concern, but SMBC has now become interested despite the regulatory cap.

To maintain operational and managerial influence, SMBC may seek representation on key board committees such as the Nomination and Remuneration Committee (NRC), which plays a central role in leadership appointments, including that of the CEO. Although SMBC’s full consolidation of Yes Bank at the parent level may require jurisdictional approvals in Japan, the deal could be finalized within this fiscal year, subject to SMBC’s agreement to Indian regulations and regulatory approvals.

Before you go

Prashant Kumar (current CEO) is set to complete his term in October. If the deal goes through, SMBC will recommend candidates for the role to the central bank. India has already been carved out as a separate operating region by SMBC in preparation for the acquisition. It will also be the biggest private bank M&A in India.