In a significant development in India's banking sector, Sumitomo Mitsui Banking Corporation (SMBC), Japan's second-largest lender, is reportedly in advanced talks to acquire a controlling stake in Yes Bank, a private lender that has undergone a remarkable turnaround since its rescue by the Reserve Bank of India (RBI) in 2020. This potential deal, which could value Yes Bank at approximately $1.7 billion, marks a pivotal moment for both institutions and could reshape the landscape of private banking in India.
The State Bank of India (SBI), which holds a 24% stake in Yes Bank, has been actively seeking a long-term buyer since the bank's recovery. Domestic banks and financial institutions collectively own about 11.34% of Yes Bank, while private equity firms Advent International and Carlyle hold stakes of 9.20% and 6.84%, respectively, as of March 2025.
SMBC's potential acquisition of a 51% stake would represent India's largest banking sector merger and acquisition (M&A) deal to date. The move comes on the heels of SMBC's previous investment in India, where it acquired a 74.9% stake in Fullerton India Credit for $2 billion in 2021. Last week, SMBC's senior leadership met with SBI officials and other key stakeholders in Mumbai to finalize the terms of the deal.
As of May 5, 2025, Yes Bank's stock closed at Rs 17.73 per share, reflecting a year-to-date decline of 9.5% and a market capitalization of Rs 55,594.50 crore. Despite the dip in stock performance, the RBI has reportedly given SMBC a verbal assurance that it would be allowed to retain a majority stake in Yes Bank, despite existing foreign direct investment (FDI) norms that typically restrict foreign banks from holding controlling stakes in Indian lenders.
The current FDI regulations allow for up to 74% overseas participation in Indian private banks, with individual entities capped at 15%. However, the RBI has made exceptions in the past, such as allowing Fairfax to acquire a 51% stake in Catholic Syrian Bank in 2018 and DBS to take over Lakshmi Vilas Bank in 2020. While SMBC's voting rights will be capped at 26%, the RBI's willingness to provide exceptions indicates a potential shift in regulatory attitudes towards foreign investment in the Indian banking sector.
Yes Bank's managing director and CEO, Prashant Kumar, is set to complete his term in October 2025. If the deal proceeds, SMBC will likely recommend candidates for the role to the RBI. Kumar has expressed optimism about the bank's future, stating in a recent analyst call that Yes Bank's total deposits have grown to Rs 2.85 lakh crore in FY25, a remarkable increase of 2.7 times since March 2020. Furthermore, the bank's gross non-performing assets (NPAs) have dropped to 1.6%, with net NPAs at 0.3% in FY25, a significant improvement from the 16.8% and 5% levels seen in FY20.
"We would like to keep the proportion of retail and SME (small and medium enterprises) at around 60%," Kumar said, highlighting the bank's strategic focus on retail growth. Yes Bank reported a net profit of Rs 2,406 crore for the full year, marking a 93% increase over the previous year, compared to a significant loss of Rs 16,418 crore in FY20.
SMBC's entry into the Indian market began in December 2012, with branches established in New Delhi, Mumbai, and Chennai. The bank also opened a branch in the Gujarat International Finance Tec-City (GIFT City) in July 2024. As the negotiations progress, the potential merger of SMBC India and Yes Bank is on the horizon, although officials caution that this is still a long-term goal.
In addition to SMBC, other financial institutions such as Mizuho Bank and Emirates NBD have expressed interest in acquiring stakes in Yes Bank in the past year, but discussions did not advance until SMBC re-entered the negotiations. The RBI's hints at relaxing ownership guidelines for Yes Bank have encouraged these discussions, allowing for a controlling stake of 51% or more, which could be gradually reduced to 26% over five years.
As the banking sector in India continues to evolve, experts emphasize the need for strong strategic leadership to restore market confidence and enhance governance standards at Yes Bank. Asutosh Mishra, head of research at Ashika Stock Broking Ltd, noted, "Yes Bank requires a strategic promoter with robust management control to ensure long-term stability and sustainable growth."
The potential acquisition by SMBC not only paves an exit path for SBI and other banks that aided in Yes Bank's rescue but also positions Yes Bank to better compete against its nimble rivals in a rapidly changing banking landscape.
In summary, the ongoing discussions between SMBC and Yes Bank could herald a new chapter for the private lender, providing it with the strategic backing necessary to thrive in India's competitive financial environment. As the situation develops, stakeholders and investors alike will be watching closely for further announcements regarding this landmark deal.
