Industry
Sumitomo wanted to take Yes Bank's reins. Will it settle for less?
Summary
- RBI is okay with SMBC acquiring 51% in Yes Bank as an exceptional case since the private lender’s growth has been somewhat stifled in the absence of a stable, long-term promoter. But Banking Regulation Act bars any single bank shareholder from voting rights above 26%.
The Reserve Bank of India (RBI) has informed Sumitomo Mitsui Banking Corp. (SMBC) that its voting rights in Yes Bank Ltd will be capped at 26% even if the Japanese bank acquires up to51%inthe private lender, two people aware of the development said, in a setback for the Japanese conglomerate that had hoped to take full control.
SMBC officials have been in conversations with RBI over the last few weeks to discuss buyingastakein the Yes Bank, which was rescued from the brink of collapse by a clutch of banks four years ago.
Special case
As a special case, RBI has previously expressed its comfort with any suitable buyer picking up to 51% in the bank.
"RBI has responded to SMBC saying that the Banking Regulation Act caps voting rights in private sector banks at 26%," said one of the two people cited earlier. "Any change in this will set a wrong precedent," the person said on the condition of anonymity.
RBI, however, is okay with SMBC acquiring 51% in Yes Bank as an exceptional case since the private lender’s growth has been somewhat stifled in the absence of a stable, long-term promoter.
"SMBC is of the view that without 51% voting share, it will be treated as a mere portfolio investment which is marked to market," the second person said.
Both SMBC and Dubai-based Emirates NBD are currently doing due diligence on Yes Bank. In August, Mint reported that SMBC has appointed JPMorgan as its financial adviser and J Sagar Associates as its legal advisers for the proposed stake acquisition.
Also read | Four years since Yes Bank rescue, RBI greenlights an exit plan for its saviours
In 2020, Yes Bank was rescued by a group of banks led by SBI, in an operation supervised by the RBI. This came after the bank's founder and CEO Rana Kapoor failed to secure the banking regulator’s nod to continue at the lender, after certain shortfalls were spotted in the bank’s basic liquidity requirements.
“The bank needs a new owner who can buy out the stake from SBI and others, enable the bank to compete more aggressively with other private lenders, grow the book faster and put in place long-term growth strategies," the first person added.
Exit path
The RBI approval for 51% stake acquisition by a potential new owner opens up an exit path for SBI and other lenders in Yes Bank, which has assets worth over ₹4 trillion.
Various banks collectively hold 33.74% in Yes Bank, including SBI (23.99%), HDFC Bank (2.75%), ICICI Bank (2.39%), Kotak Mahindra Bank (1.21%), and Axis Bank (1.01%).
Also read | Rana Kapoor: A man driven by a huge sense of self-image
If Sumitomo indeed acquires 51% in Yes Bank with a voting cap, it will be only such instance after Catholic Syrian Bank where RBI has allowed a single investor to hold a majority stake with voting rights capped at 26%. The central bank has set this cap to ensure that no single entity gets excessive powers to influence any business decision or block or pass any resolution without others’ consent.
If SMBC agrees to acquire 51% in Yes Bank despite its voting right capped at 26%, it will be for the only instance since CSB that any strategic or institutional investor has ever held differential voting rights (DVR) shares in an Indian private sector bank.
DVRs not permitted
Yes Bank is a listed entity and as per Sebi’s norms, DVRs are not permitted in any listed firm unless it is specified by a regulator under special circumstances.
“Sebi's Listing Obligations and Disclosure Requirements Regulations (LODR) talk about parity of rights among all shareholders. However, the 26% voting rights cap as per section 12 B of the Banking Regulation Act would apply given that any law overrides a regulation," said Abizer Diwanji, founder of Mumbai-based consultancy firm NeoStrat Advisors Llp services.
Also read | Yes Bank grapples with legacy issues left behind by disgraced founder
At present, apart from the domestic banks cited above, state-run LIC owns 3.98% in Yes Bank, while private equity firms CA Basque Investments holds 8.74% and Verventa Holdings Ltd 9.21%.
“In the particular case, control seems inevitable if the bank is to be turned around, especially given that there are large chunks of shares held by specific investors. The idea of a strategic sale seems difficult," added Diwanji.
Another financial services expert said that all foreign stakeholders will stand to be as good as private equity investors if a serious investor is not allowed to have decisive voting rights even for such cases.
“Since two PE firms already own around 17% in Yes Bank currently, the government’s intent to find a strategic acquirer may stand frustrated if no shareholder is given a controlling voting right even for such cases. It will then make Yes Bank look like a PE-controlled bank," said this person.
First reported
Mint first reported in July that RBI has okayed the sale of up to 51% stake in Yes Bank to an appropriate incoming promoter.
SMBC is looking at a valuation of about $5 billion for a 51% stake in Yes Bank. As of Thursday's close, Yes Bank’s market capitalization was ₹73,439 crore, or about $9.1 billion.
In an interview with CNBC-TV18 on Wednesday, UAE Ambassador to India Abdulnasser Alshaali had revealed that an Abu Dhabi-based bank is in advanced negotiations to acquire a significant stake in an Indian bank.
Emails sent to Yes Bank, SBI, RBI, SMBC remained unanswered.
Earlier, in 2018, RBI allowed Canada’s Fairfax Holdings Ltd to acquire 51% stake in Kerala-based Catholic Syrian Bank, making the Prem Watsa-owned company the first foreign investor to gain majority ownership in an Indian bank. In CSB too, the regulator capped voting rights at 26% as per the Banking Regulation Act.
