Yes Bank takes fresh guard, boosted by SMBC’s ₹16,000-crore investment

THE FAIR BREEZE BLEW, the white foam flew — and Yes Bank could very well be the first to burst into a new sea of opportunities, as Prashant Kumar, given the helm in 2020 after India’s central bank guided its bailout, gets a six-month extension as its managing director and chief executive officer. “I was given a responsibility in 2020, and today I feel relieved I have fulfilled this responsibility,” Kumar says. Powering Yes Bank’s new course is Sumitomo Mitsui Banking Corporation (SMBC), which now has a near 25% stake in it. “It was not just about taking the bank out of trouble but also finding a permanent solution. The SMBC deal is that,” says Kumar. In May, SMBC, ranked the world’s 21st largest bank, bought a 20% stake from State Bank of India and seven other banks. In September, it picked up another 4.22% stake from global investment group Carlyle. The total stake size can go up to 51%. Kumar received a three-year extension in October 2022. Another six-month extension till April 2026 followed this October, soon after SMBC’s entry. “This is the first time we are getting a strategic investor who is willing to invest for the future. Two of their nominee directors have joined our board this month,” says Kumar. Sneha Jain, investment manager at smallcase and founder and CEO at WealthTrust Capital Services, says, “The SMBC partnership could mark a turning point in its growth journey... Beyond the infusion of capital, the alliance offers access to stable funding, global governance practices and an expanded client network.” For Kumar, the SMBC deal is not just about capital infusion, but also about removing long-standing doubts on the bank’s stability. “There was uncertainty and anxiety among investors, rating agencies, and the market,” says Kumar, who took charge in 2020 after India’s then fourth-largest private bank was rocked by a liquidity crisis brought about by serious governance issues and the aggressive strategy of its founder, Rana Kapoor. Yes Bank had almost gone into a tailspin in the second half of 2019. After the Reserve Bank of India (RBI) stepped in, it got SBI to inject cash into the capital-starved bank. Kumar, then SBI’s chief financial officer and deputy managing director, was put at the helm. SMBC picked up a 20% stake earlier this year, followed by an additional 4.22% in September. SBI’s stake is now down to 10.8% (it sold a little over 13% of its 24% stake). “Everyone wanted to understand how the SBI shareholding would be managed because it was clear that SBI could not hold 24% forever due to regulatory requirements. The concern was that whenever SBI had to come down below 15%, how this holding would be offloaded,” Kumar says. Why is the SMBC deal a game-changer? “If SBI’s stake were sold in the market, it would have put huge pressure on the stock,” he says. Ditto if a private equity player had taken SBI’s stake, as they usually work for short-term returns. SMBC is a long-term strategic player, the second-largest financial group in Japan and among the top financial groups globally. It brings stability and a long-term strategy. Jain says the deal will help Yes Bank accelerate growth in corporate segments, such as trade finance, supply chain lending, and syndicated loans, which require sophisticated cross-border solutions. “More strategically, the deal provides a potential platform for Yes Bank to become a bridge between Indian corporates and Japanese, or broader Asian, capital,” she says. Another analyst says by co-originating loans, offering yen-denominated trade lines, and serving as a local anchor for Japanese firms entering India, Yes Bank can facilitate a two-way corridor of capital and expertise. Kumar says SMBC’s stake provides Yes Bank with a safety net for future fundraising. Before SMBC’s entry, the worry was that if Yes Bank needed capital, how would it get the right price when SBI and PE investors had regulatory limits on how much they could contribute. “This has also been addressed because there is a pre-emptive right available to SMBC to participate in any future capital raise. If they are willing to take 25% of any additional capital, it makes it easier for others in the market to join in,” he says. Kumar says SMBC’s entry is a “vote of confidence” in Yes Bank’s franchise. “Someone putting in ₹16,000 crore shows they have done detailed due diligence and have confidence that this franchise will deliver a return on their investment,” he says. The market agrees, he adds. “All four rating agencies have upgraded our rating to AA minus... We started from the default category five years back. Today, we are at AA minus, and there is even a possibility of a further upgrade.” Better ratings reduce the cost of its liabilities and encourage more government and private institutions to bank with it. This new strategic partnership also brings fresh business opportunities for Yes Bank. SMBC has three branches in India, handling around 1,000 corporates. Yes Bank, with over 1,200 branches across India, can now capture a significant share of the transaction banking, foreign exchange, and salary account opening businesses of these corporates, which other banks currently handle. “Our retail teams can offer salary accounts, loans, and transaction banking services. Our digital and transaction banking capabilities are among the best in the industry, and this will strengthen our fee income streams,” says Kumar. The boardroom will also reflect this change. “SBI earlier had two nominee directors. With their reduced shareholding, they now have one,” says Kumar. Two nominee directors will represent SMBC, and the board also has representation from Advent, a PE investor. Together, these investors hold 44%. Jain says, “If other global banks pursue similar alliances with Indian lenders, the competitive landscape for corporate banking is likely to intensify. Banks may vie for marquee corporate mandates, putting pressure on lending spreads, but this expansion will also increase the overall pool of cross-border deals and fee-based income.” Kumar says the deal shows that Indian banking can attract some of the best names as strategic investors. According to Jain, the winners will be those who combine strong local origination capabilities with seamless execution and disciplined risk management. Yes Bank will continue to focus on customers, Kumar says, adding, “No depositor should have any concern now”. “Even earlier, when SBI was the largest shareholder, depositors’ money was safe. But now, there is no uncertainty about the bank’s future.” He also sees the entry of global investors as a positive for competition in India. “This would be really good for customers because they will get better products and services.” Aniket Dani, director, Crisil Intelligence, says, “With a projected GDP expansion of 6.5% in FY26, outpacing the global economy's growth rate of 2.9% in this calendar year, the demand for banking services is expected to increase. This growth is likely to attract the attention of global banks, potentially leading to increased competition in the Indian banking landscape.” Kumar sees the deal helping Indian banks open doors to Japanese and other Asian economies. “Today, there is a huge interest from these geographies in the Indian market.” Dani says, “The Indian banking sector’s growth potential is driven by several factors, including low credit penetration, robust consumption demand and strong private corporate balance sheets.” Private sector banks have been gaining ground, with their market share rising to around 40% in FY25, up from 34% in FY20. Dani says private banks have been able to expand their credit portfolio at a CAGR of around 16% between FY20 and FY25, outpacing the 10% reported by public sector banks. Kumar is optimistic about the economy, especially after the GST rate cuts. “Earlier, income tax reduction gave individuals more money to spend. Now, GST rationalisation will further boost consumption,” he says. From a bank on the brink to a prized acquisition for a global giant, Yes Bank has come a long way. Fortune India is now on WhatsApp! Get the latest updates from the world of business and economy delivered straight to your phone. Subscribe now.

Yes Bank takes fresh guard, boosted by SMBC’s ₹16,000-crore investment

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