- Japanese banking giant SMBC in advanced talks to acquire controlling 51% stake in Yes Bank, potentially creating India’s largest private bank M&A deal
- RBI offers conditional approval but caps voting rights at 26%, despite allowing SMBC to maintain majority economic stake
- Yes Bank’s stock surges nearly 10% as investors bet on foreign acquisition premium
- SBI looking to divest its 24% stake acquired during 2020 rescue, expected to earn ₹10,000 crore profit
- Deal faces hurdles including ongoing AT-1 bond legal battle worth ₹8,415 crore
MUMBAI: The race for Indian banking assets has intensified as Japan’s Sumitomo Mitsui Banking Corporation (SMBC) moves closer to acquiring a controlling stake in Yes Bank, marking what could become the largest merger and acquisition deal in India’s private banking sector. The negotiations, which have been underway for several months, are now in the final stages, with the Japanese banking giant looking to secure a 51% stake in the Indian lender.
Stock Performance: Yes Bank Ltd (BSE: 532648) Price: ₹17.73 (up 0.11%) 52-week High/Low: ₹28.55/₹16.02 Market Cap: ₹55,595 crore
The development comes as State Bank of India (SBI), which currently holds a 24% stake in Yes Bank following its 2020 crisis-driven rescue, seeks to offload its holding. The potential Yes Bank-SMBC deal highlights the growing interest of global financial institutions in India’s robust banking sector, creating a competitive landscape where multiple international players are vying for strategic assets.
The Acquisition Strategy
The stake acquisition plan involves a multi-pronged approach, with SMBC looking to purchase approximately 20% from SBI’s current 23.97% holding, followed by a fresh capital infusion of 6-7%. As per regulatory requirements, this would trigger a mandatory open offer for an additional 26% stake from public shareholders.
According to market reports, the Reserve Bank of India has been approached regarding SMBC’s potential acquisition of a majority stake in Yes Bank. Industry observers note that while full economic ownership might be possible, voting rights would likely be capped at 26% in accordance with the Banking Regulation Act, following precedents set in previous banking acquisitions.
| Financial Parameters (₹ in Crore) | Q4 FY25 | Q4 FY24 | YoY Change (%) |
|---|---|---|---|
| Revenue | 7,623 | 7,458 | 2.2% |
| Interest | 5,352 | 5,309 | 0.8% |
| Other Income | 1,815 | 1,642 | 10.5% |
| Expenses | 3,080 | 3,340 | -7.8% |
| Profit before tax | 1,006 | 451 | 123.1% |
| Net Profit | 745 | 467 | 59.5% |
| Gross NPA Ratio (%) | 1.60% | 1.70% | -10 bps |
| Net NPA Ratio (%) | 0.30% | 0.60% | -30 bps |
Quarterly Trend Analysis
The multi-quarter data reveals several noteworthy trends that make Yes Bank an attractive acquisition target for SMBC and highlight the improving financial health of the institution:
- Consistent Growth in Other Income: The bank has shown remarkable growth in other income, increasing from ₹1,642 crore in Q4FY24 to ₹1,815 crore in Q4FY25, representing a 10.5% year-on-year growth. This diversification of revenue streams enhances the bank’s overall stability.
- Expense Management: Q4FY25 expenses decreased by 7.8% year-on-year to ₹3,080 crore from ₹3,340 crore, indicating effective cost control measures being implemented by the management.
- Stable Asset Quality: The gross NPA ratio has stabilized at 1.60% for three consecutive quarters, demonstrating consistent credit risk management. More impressively, the net NPA ratio has steadily improved from 0.60% in Q4FY24 to 0.30% in Q4FY25.
- EPS Improvement: Earnings per share increased from ₹0.16 in Q4FY24 to ₹0.24 in Q4FY25, reflecting improved profitability and potential for better shareholder returns under new ownership.
- Financing Margins: While financing margins remain negative at -11% in Q4FY25, this represents an improvement from -16% in Q4FY24, suggesting gradual progress in core banking operations.
Competitive Landscape
The Yes Bank stake sale has triggered intense competition among several global financial powerhouses. While SMBC appears to be leading the race currently, other major institutions have shown interest at various points:
- Mitsubishi UFJ Financial Group (MUFG), Japan’s largest bank
- Dubai-based Emirates NBD
- Japan’s Mizuho Bank
This competitive environment has created favorable conditions for SBI, which expects to earn approximately ₹10,000 crore profit from its stake sale. SBI had acquired this stake as part of the RBI-led rescue operation in 2020 when Yes Bank faced severe financial difficulties.
Industry analysts suggest that while immediate priorities focus on finalizing the stake acquisition, a long-term strategic vision might include eventual integration of SMBC’s India operations with Yes Bank to maximize operational synergies and market position.
Financial Risk Profile
Yes Bank has demonstrated steady improvement in its financial health since the 2020 crisis, making it an attractive acquisition target. According to the latest quarterly results, the bank’s asset quality metrics have stabilized, with the gross non-performing assets (GNPA) ratio holding steady at 1.60% for the third consecutive quarter. More impressively, the net NPA ratio further improved to 0.30% in Q4FY25 from 0.50% in the previous quarter, indicating effective resolution and provisioning strategies.
The bank’s profit before tax witnessed a significant surge to ₹1,006 crore in Q4FY25, more than doubling from ₹451 crore in the corresponding quarter of the previous year, representing a 123.1% increase. This robust performance has translated into a net profit of ₹745 crore for Q4FY25, marking a 59.5% year-on-year growth. These financial indicators reflect the bank’s successful turnaround and enhanced operational efficiency since its 2020 restructuring, making it a valuable target in the current race for Indian banking assets.
Outlook and Future Prospects
If successful, the acquisition would mark a significant milestone in India’s banking landscape, potentially leading to increased foreign participation in the sector. For Yes Bank, SMBC’s financial strength and global expertise could accelerate its growth trajectory and help compete more effectively with larger private sector rivals.
“The acquisition would bring global best practices and potentially new product innovations to Yes Bank’s offerings,” noted a banking sector expert. “It could also lead to enhanced focus on retail and SME lending, which aligns with the bank’s current strategic direction.”
Looking ahead, the bank has set a loan growth target of 12-15% for FY26, with deposits projected to grow slightly faster than loans. The retail and SME loan book is expected to grow by 10-12%, maintaining the strategic product mix at 60% retail and 40% corporate.
Challenges and Risk Factors
Despite the positive momentum, several challenges could impact the deal’s completion:
- The ongoing legal battle regarding the write-down of Yes Bank’s Additional Tier-1 (AT-1) bonds worth ₹8,415 crore in March 2020
- Regulatory concerns about foreign ownership in Indian banks
- The Banking Regulations Act requirement for promoters to reduce their stake to 26% within 15 years
- Integration challenges and potential cultural differences between the Japanese banking giant and the Indian lender
About Yes Bank
Yes Bank Limited is one of India’s leading private sector banks, founded in 2004. After facing a severe crisis in 2020 that led to an RBI-orchestrated rescue, the bank has undergone significant restructuring and strategic reorientation. Currently, Yes Bank is India’s seventh-largest bank by market capitalization and a leading mid-cap private sector bank.
Key Takeaways for Investors
- The potential SMBC acquisition could lead to a rerating of Yes Bank shares if successfully completed.
- The deal structure will be crucial, especially regarding the pricing of the open offer to public shareholders.
- Investors should monitor regulatory approvals and the resolution of the AT-1 bond legal case.
- Medium to long-term prospects appear positive with improved capital position and potential synergies.
- Integration risks and potential strategic shifts under new ownership remain key watch areas.
Footnotes:
- AT-1 bonds (Additional Tier-1 bonds) are perpetual debt instruments with no maturity date that banks use to shore up their core capital base to meet Basel III norms.
- The Banking Regulation Act limits voting rights of individual shareholders in Indian banks, typically capping them at 26% regardless of economic ownership.
- Open offer refers to the mandatory public offer required under SEBI regulations when an acquirer’s stake exceeds certain thresholds, allowing other shareholders to exit at the acquisition price.
- Capital Adequacy Ratio (CAR) is a measure of a bank’s available capital expressed as a percentage of its risk-weighted credit exposures.
Disclaimer: I am not a SEBI-registered investment advisor. The information provided in this blog is for educational and informational purposes only and should not be considered as financial advice. Please consult a qualified professional before making any investment decisions.