SBI, private banks' ₹13,483 cr Yes Bank stake sale to be 'tax-free'

SMBC's 20% stake purchase marks Japan's biggest bank's entry into India and the largest cross-border deal in the country's financial sector

The State Bank of India (SBI) and seven other private banks are set to gain a tax-free income of ₹13,483 crore from their stake sale in Yes Bank to Japan’s Sumitomo Mitsui Banking Corp (SMBC), according to a report by The Economic Times.

 

SMBC is likely to close the deal to buy a 20 per cent stake through a secondary market transaction in the September quarter, making it the largest cross-border merger and acquisition deal in India's financial sector. The deal will also mark the entry of Japan's largest bank into India.

 

According to the report, the proceeds from the deal will be booked as "other income". The Yes Bank Reconstruction Scheme, 2020 has a specific clause exempting banks that invested in the reconstruction from paying capital gains tax on profits from the sale of shares. The clause was added to encourage banks to participate in the restructuring.

 

Without exemption, banks would have paid 12.5% tax

SBI will sell 13.19 per cent of its 24 per cent stake for ₹8,889 crore. Whereas seven private banks—including HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank—will offload a combined 6.81 per cent for ₹4,594 crore. The banks had subscribed to Yes Bank shares at ₹10 each and are now selling at ₹21.50 per share. 

 

Without any exemption, banks would have to pay 12.5 per cent as long-term capital gains tax.

Timeline of the deal

• May: SMBC proposed to acquire 13.19 per cent stake from SBI and 6.81 per cent from seven other banks for ₹13,483 crore
• August: The Reserve Bank of India (RBI) approved SMBC's application to raise its stake
• Early September: The Competition Commission of India gave its nod to the proposal

SMBC to invest ₹16,000 cr in Yes Bank

SMBC is also in talks to inject an additional ₹16,000 crore ($1.83 billion) into Yes Bank through a mix of equity and debt, according to a report by The Economic Times. The infusion is expected to strengthen the bank’s balance sheet and could mark the beginning of a more significant ownership shift.

 

Last week, the RBI also approved changes to the Bank’s rules that will allow SMBC to appoint two directors and SBI to appoint one director to the board, once the ongoing deal is completed.