Completion of SMBC Deal Boosts SBI's Stake in YES Bank, Yielding Rs 8,889 Crore; Shares Rise 2%
In a significant development for the Indian banking sector, State Bank of India (SBI) has completed the sale of its stake in YES Bank to Japanese acquirer Sumitomo Mitsui Banking Corporation (SMBC). The transaction, which represents the largest cross-border investment in the Indian banking sector, received the necessary regulatory and statutory approvals from the Reserve Bank of India (RBI) and the Competition Commission of India (CCI).
SMBC intends to acquire a total 24.99% stake in YES Bank, with 20% coming from a group of banks and the remaining 4.99% likely from secondary purchase or future capital raise. The sale brought in Rs 8,888.97 crore for SBI, who sold 413,44,04,897 shares, accounting for 13.19% of YES Bank's stake.
Despite the divestment, SBI will continue to remain a shareholder in YES Bank with a residual shareholding of 10.8% of YES Bank shares. The entry of SMBC into YES Bank could provide access to a sustained source of capital, enhanced governance, management rejig, and possibly some portfolio clean-up. It could also potentially lead to one more reset on the asset front.
However, YES Bank's core-profitability (PPoP at 0.9% of assets) remains sub-par due to slower growth, lower margin, and higher operational cost. Analysts at Emkay Global have retained their 'Sell' rating on YES Bank with a target price of Rs 17.
Interestingly, SMBC will not have ownership control in YES Bank. Instead, it will have a say in the appointment of the new MD & CEO of YES Bank. The multinational financial services company belongs to the Sumitomo Mitsui Financial Group (SMFG).
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Following the stake sale, SBI had also acquired additional shares as part of a follow-on public offer by YBL in July 2020. The recent divestment by SBI to SMBC was subject to the approval from the RBI and the CCI, as was the case with SMBC's stake in YES Bank in March 2020, when it became the largest shareholder of YES Bank under the YES Bank Reconstruction Scheme, 2020, as notified by the Central Government.
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