Moody’s Ratings on Wednesday said Sumitomo Mitsui Banking Corporation’s (SMBC) planned acquisition of a 20 per cent stake in Yes Bank is credit positive for the lender as it brings in a long-term strategic partner with a strong balance sheet and funding capacity to support its growth.
On May 9, Yes Bank announced that SMBC will acquire a 20 per cent stake from its shareholders, including the State Bank of India and several Indian banks, which had participated in the banks’ reconstruction scheme in 2020, for around Rs 13,480 crore.
“The planned acquisition is credit positive for Yes Bank because it brings in a long-term strategic partner, with a strong balance sheet and funding capacity to support its growth. SMBC can nominate two non-executive directors to Yes Bank’s board to support its governance and strategy,” the rating agency said.
However, with a 20 per cent stake, we anticipate that SMFG’s influence will be limited and consequently we do not currently plan to factor in any affiliate support in Yes Bank after completion of the proposed transaction, Moody’s said.
The RBI restricts foreign bank ownership in domestic private banks to 15 per cent. However, the central bank has made exceptions to permit higher foreign ownership in distressed banks. For example, the Indian branch of DBS Bank Limited acquired 100 per cent of Lakshmi Vilas Bank, and Fairfax Financial Holdings Ltd acquired a 51 per cent stake in Catholic Syrian Bank through its Indian subsidiary.
The deal will enhance Sumitomo Mitsui Financial Group (SMFG)’s presence in India, which it considers has both medium- and long-term strong growth potential. SMFG already holds a 100 per cent stake in SMFG India Credit Company Limited, a medium-sized non-bank finance company.
The transaction will have a limited financial impact on SMFG because of its relatively small size compared with the company’s overall scale. In Asia, SMFG has acquired stakes in several financial institutions across emerging markets such as India, Indonesia, the Philippines and Vietnam.
In March 2020, the Reserve Bank of India bailed out the depositors and senior creditors of Yes Bank under a reconstruction scheme. SBI and other Indian financial institutions infused Rs 100 billion new equity capital into Yes Bank.
In July 2022, Yes Bank exited the central bank’s reconstruction scheme following the formation of a new board with shareholders’ approval. Post this transaction, SBI will hold more than 10 per cent shareholding in the Yes Bank.
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