SBI and seven other private banks will earn a tax-free profit of ₹13,483 crore by selling their stake in Yes Bank. These shares will be sold to Japan's SMBC at ₹21.50 per share. SBI will sell its 13.19% stake and other banks will sell a 6.81% stake. This will be India's largest international M&A deal to date.
Yes Bank Shares: SBI and private banks will earn ₹13,483 crore by selling their stake in Yes Bank. SBI is selling 13.19% of its 24% stake for ₹8,889 crore, while HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, and other banks will sell a 6.81% stake for ₹4,594 crore. These shares will be sold to Japan's Sumitomo Mitsui Banking Corp (SMBC) at ₹21.50 per share. The deal is expected to be completed in the September quarter and is considered the largest international M&A deal in India's financial sector. After the deal, SMBC will be able to appoint two directors and SBI one director to the board.
Deal Details
Under this deal, SMBC will acquire a 20 percent stake in Yes Bank. Additionally, SMBC plans to invest an additional ₹16,000 crore, or approximately $1.83 billion, in the bank. This investment will strengthen the bank's balance sheet, and SMBC's stake may increase further. The amount received from the deal will be recorded under the bank's 'Other Income'.
Under a clause in the Yes Bank Reconstruction Scheme, 2020, banks that invested in the reconstruction will be exempt from capital gains tax. Without this exemption, the banks would have had to pay a 12.5 percent tax.
SBI and Private Banks' Stake
SBI will earn ₹8,889 crore by selling 13.19% of its total 24% stake. Meanwhile, seven private banks, including HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank, will sell their 6.81% stake for ₹4,594 crore.
These banks had initially purchased these shares at ₹10 per share and are now selling them at ₹21.50 per share. Consequently, investors are likely to see significant profits from this deal.
Deal Timeline
The process for this deal has been ongoing for several months. SMBC submitted a proposal to acquire this stake in May. In August, the Reserve Bank of India (RBI) approved SMBC's stake increase. In early September, the Competition Commission of India (CCI) also gave its go-ahead. Last week, the RBI approved amendments to the bank's regulations to ensure the smooth completion of the deal.
Upon completion of the deal, SMBC will be able to appoint two directors to the board, while SBI will induct one director to the board. This will also bring about a change in the bank's management structure.
Financial and Market Impact
The completion of this deal is expected to send positive signals across the Indian banking sector. The bank's balance sheet will be strengthened, and investor confidence in the market will increase. Furthermore, this deal could encourage other foreign investors to explore opportunities in the Indian financial sector.
The tax-free profits for SBI and private banks will boost their other income. Banks can utilize this amount for their other investments and operations.
