SMBC wins RBI approval to acquire 24.99% in Yes Bank, to join board with 2 seats

By Admin

25 Aug, 2025

In a landmark development for India’s banking sector, Japanese lender Sumitomo Mitsui Banking Corporation (SMBC) has received approval from the Reserve Bank of India (RBI) to acquire up to 24.99% stake in Yes Bank. This marks the single largest cross-border investment in the Indian banking space, signaling growing foreign confidence in the country’s financial ecosystem.

RBI Approval and Deal Structure

Yes Bank confirmed on Saturday that RBI has approved SMBC’s proposal to acquire up to 24.99% of its paid-up share capital and voting rights. The approval, issued via RBI’s letter dated August 22, 2025, is valid for one year. However, the central bank clarified that SMBC will not be considered a promoter post-acquisition, as Yes Bank currently has no promoters and is fully owned by public shareholders.

The transaction builds upon SMBC’s earlier announcement in May 2025, where it committed to acquire a 20% stake in Yes Bank for ₹13,482 crore. In July, SMBC sought approval for an additional 4.9% stake, pushing its total holding just under the regulatory cap of 25%.

As per the agreed structure, India’s largest lender State Bank of India (SBI) will sell a 13.19% stake, while seven other shareholder banks — Axis Bank, Bandhan Bank, Federal Bank, HDFC Bank, ICICI Bank, IDFC First Bank, and Kotak Mahindra Bank — will offload a collective 6.81% to facilitate the deal.

Largest Cross-Border Investment in Indian Banking

The acquisition represents a historic moment for Indian banking. SMBC, a wholly-owned subsidiary of Sumitomo Mitsui Financial Group (SMFG), is Japan’s second-largest banking group with assets worth $2 trillion as of December 2024. The move underscores India’s attractiveness as a destination for global capital and sets a precedent for similar foreign investments in the future.

Yes Bank, which faced a severe crisis in March 2020 leading to an RBI-led rescue spearheaded by SBI, has since been in recovery mode. This investment by SMBC is expected to bolster the bank’s financial stability, enhance governance, and expand its global reach.

Regulatory Considerations and Precedents

While India caps foreign investors’ voting rights in banks at 26%, the RBI has occasionally made exceptions in crisis situations. Notably, in November 2020, the central bank merged Lakshmi Vilas Bank with the Indian unit of Singapore’s DBS Bank, making it the first instance of a foreign-owned bank stabilizing a struggling Indian peer.

The Yes Bank-SMBC deal, however, is unique because it is not a rescue operation but a strategic investment at a time when Yes Bank is on the path to recovery. It may open the doors for greater foreign participation in India’s banking sector, especially as regulatory clarity evolves.

Board Representation and Investor Concerns

As part of the agreement, SMBC will secure two board seats at Yes Bank. However, this aspect has sparked some debate. Proxy advisory firms such as Institutional Investor Advisory Services India Ltd (IiAS) and Stakeholder Empowerment Services (SES) have advised shareholders to vote against granting SMBC nominee directors rights on key board committees.

Yes Bank’s CEO Prashant Kumar, whose term ends in April 2025, highlighted that the stake sale addresses three critical concerns, including resolving uncertainties around SBI’s stake. With regulatory approvals now in place, the bank’s search for a new chief executive is expected to gain momentum.

Market Reaction

Yes Bank’s shares have reflected investor optimism around the deal. On Friday, its stock closed at ₹19.28 apiece on the NSE, up 5.8% from May 8 — a day before the deal was officially announced. The market’s response signals confidence that SMBC’s entry will strengthen Yes Bank’s long-term prospects.

What This Means for the Banking Sector

The SMBC-Yes Bank transaction is more than just a stake sale — it is a signal of global integration for India’s banking sector. With SMBC bringing international expertise, credibility, and capital strength, Yes Bank is positioned to further stabilize and grow.

Moreover, the deal could inspire other foreign banks and financial institutions to consider larger strategic stakes in Indian lenders, creating a pathway for greater capital inflows. For India, this reinforces the narrative of its banking sector as both resilient and globally attractive.