Yes Bank shares rises over 2% on SMBC's Rs 13,482-cr stake acquisition

Yes Bank rose 2.35 per cent after SMBC's ₹13,482-crore stake deal but underperformed the Nifty Bank and Nifty 50 indices, which posted stronger gains

Shares of private sector lender Yes Bank closed 2.35 per cent higher at ₹20.40 on the NSE on Monday, following last week’s announcement that Japan-based Sumitomo Mitsui Banking Corporation (SMBC) will acquire a 20 per cent stake in the bank for ₹13,482 crore, marking the largest-ever deal in India’s banking sector. 

 

However, the stock underperformed broader indices, with the Nifty Bank index rising 3.3 per cent and the Nifty 50 gaining 3.8 per cent on the same day.

 

The deal with SMBC entails State Bank of India (SBI) selling 13.2 per cent of its stake (24 per cent) in the bank for ₹8,889 crore while seven other private sector banks, including HDFC Bank, ICICI Bank and Axis Bank among others selling 6.81 per cent stake for ₹4,594 crore.

 

 

According to Prashant Kumar, managing director and chief executive officer, Yes Bank, the hangover over the bank will be removed with this deal and there could be a possible re-rating, which will provide it with a lot of opportunities on the funding and lending side. 

 

“The recovery in Yes Bank to where it is today marks a unique case in the Indian banking industry where a coordinated effort from stakeholders has helped rebuild an institution from the depths of a crisis. Importantly, the return made by selling shareholders has been better than initially expected (doubled in five to six years, depending on the closure of the transaction)”, said Kotak Institutional Equities in a report.

 

However, the report noted that Yes Bank is yet to deliver profitability and growth ratios closer to the industry average. 

 

“The bank has successfully granularised its loans and deposits, but it has been challenging to report profitability ratios closer to the industry average. However, we are mindful that this issue is not unique to Yes Bank but common to most mid-tier private banks”, the report said, adding that being part of a larger and stronger group should give comfort to depositors (lower cost of funds) and shareholders (ability to raise capital).

 

“However, the bank has the following challenges that constrain return on equity expansion: cost structure; revenue profile led by weaker NIM; and choices of loan mix that result in higher through-the-cycle credit cost”, the report added.

 

According to Investec Research, the stake sale does not involve any change in management control yet but it remains to be seen if SMBC looks to increase its stake further in the bank. It also noted that the stake sale would boost SBI’s Common Equity Tier 1 ratio by 11 basis points, which is not considered significant.