Sumitomo Mitsui Banking Corporation’s (SMBC) bid to take a majority 51 per cent stake in Yes Bank is facing regulatory headwinds, according to sources.

The Japanese financial conglomerate’s proposal to acquire a majority stake in Yes Bank is going nowhere, they said.

Regulatory Concerns

Apparently, the Reserve Bank of India (RBI) is wary about a foreign bank taking a majority, controlling stake in a relatively large private sector such as Yes Bank.

Last month SMBC’s top leadership visited India to discuss the feasibility of acquiring a 51 per cent stake in Yes Bank with RBI and SBI.

The private sector lender’s board was superseded in March 2020 and the Bank was placed under moratorium due to its inability to raise capital to address potential loan losses and resultant downgrades, triggering the invocation of bond covenants by investors, and led to the withdrawal of deposits.

However, the Government and RBI, quickly devised a reconstruction scheme for the Bank, entailing SBI pumping in ₹6,050 crore and private institutions such as HDFC Limited, ICICI Bank, Axis Bank, Kotak Mahindra Bank, Federal Bank, Bandhan Bank and IDFC First Bank collectively infusing an overall equity of ₹3,950 crore.

The change in leadership, coupled with the capital infusion in 2020 helped Yes Bank turn the corner and it is now on a solid footing.

Stake divestment

Currently, Banks, led by the State Bank of India (SBI), collectively hold a 33.73 per cent stake in Yes Bank. SBI alone holds a 23.99 per cent stake and is understood to be keen on divesting its entire stake as the purpose with which the capital infusion was made has been fulfilled.

After the capital infusion in 2020, India’s largest bank held 48.2 per cent stake in the private sector lender.

Past Precedents

Industry experts emphasise that RBI allowed FIH Mauritius Investments Ltd (FIHM), a Fairfax Group Company, to pick up a 51 per cent stake in CSB Bank, and the amalgamation of Lakshmi Vilas Bank (LVB) with DBS Bank India Ltd. (DBIL), a wholly owned subsidiary of DBS Bank Ltd, Singapore, as these were relatively smaller private sector lenders. Both these lenders were on a sticky wicket due to weak financial parameters.

In case of restructuring of problem/weak banks or the interest of consolidation in the banking sector, RBI does permit a higher level of shareholding, including by a bank.

However, Yes Bank is a relatively large bank made whole with public money. Sources said the central bank wants to ensure that there is diversified shareholding in large private sector banks.

Besides SMBC, the other Bank that is in the race to pick up a stake in Yes Bank is believed to be Emirates Bank NBD.

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