Yes Bank expects Japan's SMBC to maintain at least 20% stake, says CEO

India's Yes Bank expects Japan's Sumitomo Mitsui Banking Corp (SMBC) to maintain at least 20 per cent stake in the lender but said that regulatory requirements may be keeping it from raising shareholding significantly beyond that, the bank's chief executive said.

SMBC on Friday said it had signed a definitive agreement to take a 20 per cent stake in Mumbai-based Yes Bank, a deal that marks the largest cross-border merger and acquisition deal in India's financial sector.

SMBC, is a unit of Sumitomo Mitsui Financial Group and is Japan's second-biggest bank. 

"For potential capital raises in the future, SMBC would be contributing," Yes Bank's CEO Prashant Kumar told Reuters in an interview on Thursday.

"It also means they (SMBC) would not like to get their stake below 20 per cent."

As part of the deal, SMBC will acquire a 13.19 per cent stake from State Bank of India, also its largest investor, and an aggregate of 6.81 per cent from other banks that had rescued it as a result of the regulator-led restructuring in March 2020.

SMBC's stake buy stopped short of the 25 per cent shareholding, which under Indian regulations triggers an open offer for another 26 per cent from public shareholders at the same price offered to a strategic investor.

The "logical" reason why SMBC did not take a higher stake in Yes Bank was probably to avoid triggering an open offer of shares, and being classified as a promoter, which carries significant regulatory obligations, Kumar said.

Large shareholders with control over a company's operations are termed as "promoters" under Indian regulations and being categorised as one carries tougher reporting requirements.

Kumar expects the regulatory approvals for the deal to come in by September.

The transaction is subject to regulatory approvals from the Reserve Bank of India, Competition Commission of India and shareholders of the Bank.

Shares of Yes Bank have risen 7.5 per cent since the announcement of the deal and, on Wednesday, Moody's Ratings said that SMBC's stake acquisition is credit positive for the Indian lender.

A re-rating, if it happens, will open doors raising funds at a cheaper cost and also expand lending opportunities, Kumar said.

SMBC's focus on large corporate customers will also help the bank expand in areas like transaction banking, he said.

Yes Bank, however, will remain focused on retail lending primarily, which formed 41.2 per cent of its loan book as on March-end.

"I don't think the retail-corporate mix, will change post the deal; we would be more focused towards retail," Kumar said.