In a significant development for the Indian banking sector, Japan's Sumitomo Mitsui Banking Corporation (SMBC) is on the verge of acquiring a majority stake in Yes Bank, marking what could become the largest merger and acquisition (M&A) in India's banking history. As one of Japan's largest financial institutions, SMBC is advancing discussions to purchase a 20% stake in Yes Bank through a secondary share sale from the State Bank of India (SBI) and other private banks.
With total assets exceeding ¥249,700 billion (approximately $1,728 billion), SMBC's interest in Yes Bank underscores the growing appeal of the Indian banking market to foreign investors. According to reports from The Economic Times, the acquisition plan involves a phased approach whereby SMBC aims to gradually increase its stake to a majority, while ensuring that SBI retains a 10% shareholding throughout the process.
On May 6, 2025, The Economic Times reported that SMBC was in advanced discussions with SBI and Yes Bank regarding this stake acquisition. SBI, which initially purchased its shares in March 2020 at Rs 10 apiece, stands to gain a remarkable 100% return on its investment. This strategic move is part of SBI's broader efforts to find a suitable investor for Yes Bank, a task it has been undertaking with the assistance of Citigroup.
In addition to SBI, other domestic banks and financial institutions—including HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank, and the Life Insurance Corporation of India—collectively holding 11.34% of Yes Bank, are expected to halve their shareholdings as part of the deal. The executive committee of SBI is set to meet today, May 9, to deliberate on this stake sale, with a potential decision imminent.
As part of the proposed acquisition, SBI will maintain one board seat, while SMBC is anticipated to secure two seats on Yes Bank's board. Notably, two private equity firms, Advent International and Carlyle, which collectively own a 16.04% stake in Yes Bank, have opted not to sell their shares at this time, having previously reduced their exposure in the open market.
The urgency of the negotiations is underscored by the approaching end of the current managing director and CEO of Yes Bank, Prashant Kumar, whose term concludes in October 2025. SMBC is keen to influence the appointment of the next CEO, as industry insiders note that the search for a suitable replacement typically takes three to six months, necessitating approval from the Reserve Bank of India (RBI).
“There are multiple top positions up for grabs. It takes at least three to six months to search for a replacement and get RBI approval,” an official familiar with the situation indicated. If a replacement is not found in time, it is likely that Kumar will receive a temporary extension.
SMBC has reportedly received verbal assurances from RBI officials that it will be permitted to retain a majority stake in Yes Bank, despite the current foreign direct investment (FDI) regulations that limit aggregate overseas participation in Indian private banks to 74%, with individual holdings capped at 15%. Historically, the RBI has made exceptions, as seen in the acquisitions of Catholic Syrian Bank by Prem Watsa’s Fairfax in 2018 and Lakshmi Vilas Bank by DBS in 2020, both of which involved distressed banks.
However, the RBI has clarified that it will not relax the current regulations regarding voting rights for foreign owners, which remain capped at 26%. This context adds a layer of complexity to the ongoing negotiations.
In summary, the impending acquisition by SMBC represents a pivotal moment for Yes Bank, which has been navigating a tumultuous financial landscape since its restructuring in 2020. As stakeholders await the outcome of SBI's executive committee meeting, the banking community is closely monitoring the developments that may shape the future of one of India's most prominent private lenders.
As the discussions continue, the implications of this deal extend beyond just the banks involved; they reflect the broader trends of globalization and foreign investment in the Indian financial sector. With the potential for significant returns and strategic partnerships, the landscape of Indian banking is poised for transformation.
