SMBC's 20% stake purchase is credit positive for Yes Bank: Moody's

Moody's says SMBC's investment in Yes Bank adds a strategic partner with strong funding and governance credentials, though affiliate support not yet factored in

Moody’s Ratings on Wednesday said Japan-based Sumitomo Mitsui Banking Corporation’s (SMBC’s) 20 per cent stake acquisition in Yes Bank is “credit positive” for the bank, as it brings in a long-term strategic partner with a strong balance sheet and funding capacity to support its growth.

 

Last week, Yes Bank disclosed that State Bank of India (SBI) and seven other private banks, who had invested in the bank during its reconstruction phase in March 2020, will collectively sell a 20 per cent stake in the bank to SMBC for ₹13,482 crore.

 

SMBC is a wholly owned subsidiary of Sumitomo Mitsui Financial Group (SMFG). SMFG also owns SMFG India Credit, one of the largest diversified non-banking financial companies (NBFCs) in India.

 

Following the fructification of the deal, SMBC will be able to nominate two non-executive directors to Yes Bank’s board to support its governance and strategy. SBI’s representation on the bank’s board will reduce from two members to one.

 

“However, with a 20 per cent stake, we anticipate that SMFG’s influence will be limited, and consequently, we do not currently plan to factor in any affiliate support in Yes Bank after completion of the proposed transaction. If SMBC significantly increases its stake in Yes Bank, we may consider incorporating affiliate support into Yes Bank’s ratings,” the rating agency said.

 

The deal is subject to approval from the Reserve Bank of India (RBI) and the Competition Commission of India (CCI).

 

“RBI restricts foreign bank ownership in domestic private banks to 15 per cent. However, the central bank has made exceptions to permit higher foreign ownership in distressed banks. For example, the Indian branch of DBS Bank acquired 100 per cent of Lakshmi Vilas Bank, and Fairfax Financial Holdings acquired a 51 per cent stake in Catholic Syrian Bank through its Indian subsidiary,” Moody’s said.

 

Additionally, it stated that the deal will enhance SMFG’s presence in India, which it considers to have strong medium- and long-term growth potential. 

SMBC to maintain its pro-rata stake even in any future capital raise: Yes Bank

Private sector lender Yes Bank on Wednesday said that Japan-based Sumitomo Mitsui Banking Corporation (SMBC), which is set to acquire a 20 per cent stake in the bank, will not be required to dilute its holding even if the bank undertakes a capital raise in the future.

“SMBC to have pre-emptive rights to maintain its pro-rata stake in any future capital raise,” the bank said in an investor presentation on Wednesday.

Additionally, the bank stated that SMBC will become the largest shareholder in Yes Bank and will have the right to nominate two board members. State Bank of India (SBI), which will continue to hold a little over 10 per cent stake in the bank, will retain the right to nominate one board member.

Currently, SBI has two nominee directors on Yes Bank’s board. One of the SBI-nominated directors will step down once the transaction is finalised.

The bank said: “The transaction will help the bank drive the next phase of growth, profitability, and value creation with continued parentage of SBI, the largest bank of India.”

Further, the deal is expected to unlock new business opportunities through enhanced access to Japanese and global conglomerates.