SMBC to have two nominees on Yes Bank board: MD & CEO Prashant Kumar

Prashant Kumar tells why SMBC has become a strategic investor and the advantages arising from this for Yes Bank

Japanese financial conglomerate Sumitomo Mitsui Banking Corporation (SMBC) has acquired a 20 per cent stake in Yes Bank from State Bank of India (SBI) and seven private banks for ₹13,482 crore, the largest cross-border banking-sector deal in India, to become its largest shareholder. Prashant Kumar, managing director and chief executive officer, tells Manojit Saha & Subrata Panda on the phone why SMBC has become a strategic investor and the advantages arising from this for Yes Bank. Edited excerpts:

 

What are the advantages of having SMBC on board? 

We were looking for a strategic investor. And this (SMBC) is a strategic investor in terms of quality, reputation, and governance. It is the second-largest financial conglomerate in Japan and 15th largest in the world. It is spread over 56 countries. You can’t get better than this. As for Japanese banks, they always have patient capital. It is not like private equity. Private equity would always like to exit in three-four years … which is again not a solution for the bank. I think ultimately the solution for a bank is in terms of having an investor that has a long-term strategy, has the patient capital, and is willing to support the bank in growth.

Their assets are more than $2 trillion. It has a very good international rating. It has not only shown an interest but also demonstrated confidence in the franchise. After it comes, we will not be having any issues in raising capital.

This gives us stability. I think the questions that were there for the past two-three years — how SBI would be replaced, who will come in its place, etc — have been resolved. On governance, it has a strong framework, which is critical for any financial institution.

 

How many nominees will it have on the board? 

Two nominee directors. SBI will have one from two now. This is because its shareholding will come down from almost 24 per cent to about 11 per cent.

 

What are SMBC’s priorities? 

In India it has four branches and serves large companies. It also has a non-banking financial company (NBFC) called SMFG India Credit. 

Yes Bank is strong in small and medium enterprises (SMEs) and four forms of banking — commercial, retail, digital, and transaction. SMEs are critical. What we are doing and the kind of business they are in are mutually exclusive.

  It (SMBC) covers the entire spectrum from large companies to NBFCs. So, what was missing was a bank, a regular bank. With this deal, it will become a real financial conglomerate in India.

 

Can SMFG India Credit and Yes Bank come together? 

It’s too early to say. SMBC is coming with 20 per cent. And this is a strategic investment. With 20 per cent, one does not become a promoter. Yes Bank would continue to be like an independent private-sector bank.

 

When do you expect the Reserve Bank of India’s (RBI’s) approval? 

There are two things: Approval from the RBI and Competition Commission of India. Normally it takes like four to five months.

 

After the transaction is through, do you have a fundraising plan? 

Immediately there is none. Our core equity is 13.5 per cent, which is sufficient for the growth of the bank. But you always need capital. With the backing of such a group, there will not be any concern or uncertainty. Second, there was concern about how SBI’s stake would be taken over. That worry is gone. We believe this will help us in our rating upgrade too.

 

What was the trigger for the deal? 

At the time of (Yes Bank’s) reconstruction, SBI came in along with other banks [to invest].  And then there was a lockin for three years. So there was a possibility of these banks selling their shares in the market. But I think nobody wanted to do that because they wanted to see that the bank should not be adversely impacted. So it means we need to find a strategic investor who has to replace these banks. Banks are not supposed to invest in other banks. So Yes Bank had not been put under a moratorium, these banks would have never invested. So if they came for a purpose, I think it was our responsibility to see we find a solution through which they are able to exit and the franchise also remains unaffected.

 

Will the private banks sell the residual stake once the deal passes regulatory muster? 

I think it would be just like any other investment for them. They can take a call like one does for any of their investment because the 3 per cent stake is across seven banks.

 

Will there be any strategic change for Yes Bank now? 

No.