State Bank of India’s plans to sell its 24 percent stake in Yes Bank seems to have hit a snag. According to sources, two prominent Japanese lenders, MUFG and Sumitomo Mitsui Banking Corporation (SMBC), who had evinced interest in picking up a majority stake in Yes Bank, may no longer be interested in the deal.
"Since September, there has virtually been no sign of a transaction brewing internally on the stake sale front and it seems that talks with both the Japanese lenders have been stalled at the moment," a source with the knowledge of the matter said.
Possible differences in control-related issues between the potential buyers and regulators in India could have derailed the transaction, at least for now, people involved in the deal said.
India restricts a promoter’s voting rights in a bank at 26 percent. So, even if the potential buyers were to acquire a 51 percent stake in Yes Bank, their voting rights would be capped at 26 percent.
Moneycontrol wrote on October 17 that the Reserve Bank of India wasn’t willing to budge, though potential investors made representations for easing restrictions on voting rights.
“If voting rights are capped at 26 percent, it doesn’t make a case for any investor to take 51 percent stake in Yes Bank. Without owning a 51 percent stake, Yes Bank cannot be categorised as a subsidiary for the potential buyers,” said another person involved in the deal who didn’t wish to be identified.
According to bankers, SMBC and MUFG’s apprehensions on how they would consolidate Yes Bank as part of their group financials, given the voting rights cap, also led to stake-sale talks being put on hold.
Emails sent to Yes Bank, MUFG and SMBC remained unanswered till the publishing of the article. “We categorically deny any developments in this matter,” an official spokesperson for SBI said in an emailed response.
Regulator’s concern
Sources said the structures proposed by buyers did not cut ice with the regulator. The central bank is said to have expressed concerns about how foreign banks could acquire a controlling stake in an Indian bank given their current status in India.
“The RBI was clear that if a foreign bank should acquire a bank in India, it must be through a wholly owned subsidiary (WOS) structure, as it enforces a certain amount of commitment from the foreign entity to remain invested in India,” a person aware of the deal talks said. “However, the potential buyers may not have seen merit in this, as they already have a presence in the country either through non-bank operations or branch offices.”
SMBC acquired nearly a 100 percent stake in Fullerton India Credit in 2021. It also has branch operations for its banking business in Delhi, Mumbai, Chennai and GIFT City.
Similarly, MUFG has branch operations in Mumbai and Chennai.
SMBC and MUFC would have to seek fresh approvals from the RBI to convert their existing banking operations into wholly owned subsidiaries to acquire a controlling stake in Yes Bank.
"Given that Yes Bank is a listed entity, converting the existing operations into WOS and acquiring a stake in Yes Bank would have been a cumbersome process," said another source.
In March 2020, when the RBI put Yes Bank under a moratorium, an SBI-led consortium of banks infused Rs 10,000 crore to revive the distressed bank.
According to reports, India’s largest bank, which holds a 23.98 percent stake, initially planned to exit Yes Bank by December 2024 or the latest by the end of FY25. These timelines seem tough to meet under the current circumstances.
The State Bank of India stock ended the day at Rs 835 on the National Stock Exchange, down 0.5 percent from the previous close. Yes Bank closed at Rs 20.27, up 0.65 percent.
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