Sumitomo Mitsui Banking Corp (SMBC), a Japanese banking giant, is in advanced talks to acquire a significant stake in YES Bank. The transaction is being coordinated with the State Bank of India (SBI), which owns 24 percent of YES Bank and has been looking for a long-term buyer following the bank's turnaround since its 2020 rescue.

The months-long discussions are now nearing completion. SMBC's senior management reportedly met with SBI officials and other key stakeholders in Mumbai last week to finalize terms.

If completed, the transaction would be SMBC's largest investment in India, exceeding its $2 billion acquisition of Fullerton India Credit (74.9%) in 2021.

Stake sale may trigger open offer under Indian rules

SMBC is expected to acquire a controlling stake, potentially 51 percent, necessitating a mandatory open offer for up to 26% of the bank's equity under Indian regulatory standards.

A 51% stake sale in YES Bank would give SMBC effective control, pending regulatory approval. "They (SMBC and SBI) are finalizing the deal structure. However, with the RBI providing comfort, an announcement is imminent," according to a source familiar with the situation.

RBI is likely to allow SMBC a majority stake in YES Bank

The Reserve Bank of India (RBI) is said to have verbally assured SMBC that it would be permitted to maintain a majority economic stake in YES Bank. However, voting rights will remain limited to 26 percent under the RBI's current regulations.

Similar exceptions have previously been made, including Fairfax's acquisition of Catholic Syrian Bank and DBS's acquisition of Lakshmi Vilas Bank.

If completed, SMBC will become the bank's largest shareholder. However, it is unclear whether other institutional holders, including HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank, LIC, Carlyle, and Advent International, will exit.

Prashant Kumar, CEO of YES Bank, plans to step down by October

Prashant Kumar, the bank's CEO, will complete his term in October. If the transaction goes through, SMBC will recommend candidates for the position to the central bank. In anticipation of the acquisition, SMBC has already designated India as a separate operating region. SMBC's co-head for Asia Pacific, Rajeev Kannan, will now report directly to Tokyo.

"Eventually, the plan is to merge the two (SMBC India and YES Bank), but that is still far out," an official said.

YES Bank's deposit growth and focus on SMEs continue

YES Bank's deposits reached ₹2.85 trillion in FY25, a 2.7-fold increase since March 2020. Retail and SME loans are expected to drive further growth. "We would like to keep the proportion of retail and SME at around 60 percent," Kumar said during a recent earnings call.