The Indian Bank of India plans to sell a 20% participation in the second largest bank in Japan, Sumitomo Mitsui Banking Corporation (SMBC), a subsidiary in exclusive property by Sumitomo Mitsui Financial Group, for $ 1.58 billion, pending regulatory approvals from the Bank of India (RBI) and the Competition Commission.
In the event of success, the transaction will represent the largest transfrontal mergers and acquisitions agreement in the India financial sector and should be concluded in the second quarter of 2025. During the banking crisis in March 2020, the RBI proposed a reconstruction plan to save the bank with the support of the State Bank of India (SBI) and other banks. SMBC will buy a participation of 13.19% of SBI and a participation of 6.81% of other institutions, including Axis Bank, Bandhan Bank, Federal Bank, HDFC Bank, ICICI Bank, IDFC First Bank and Kotak Mahindra Bank, thanks to a purchase of secondary participation.
The fact that the Crisis-Stricken Yes Bank attracts high quality investors to replace SBI and other banks highlights its recovery after the 2020 crisis, giving a boost to the banking sector. The SMBC is optimistic about the Indian banking sector and therefore aims to invest in the long term.
After the transaction, SMBC will become the largest shareholder in Yes Bank and appoint two members to its board of directors. SBI will retain a 10.8% participation in Yes Bank, while other banks will collectively hold only 2.9%. Basque Investments, affiliated with the Carlyle group, and Verventa Holdings, affiliate of Advent International, will retain 6.8% and 9.2% respectively. The public will hold a 50.26% participation in Yes Bank.
The entry of SMBC establishes a new precedent for future foreign acquisitions in the Indian banking sector and improves corporate governance standards. In addition, the agreement will facilitate the exchange of goods and services between India and Japan.
Indian foreign investment standards caps voting rights for investors in banks at 26% and investments by financial institutions in Indian banks at 15%, stumbling block for the entry of foreign investors. A higher ceiling on voting rights and an increase in the investment threshold could encourage foreign investors.