Yes Bank Stake Sale to SMBC Tax-Free: SBI, HDFC and 6 Other Banks to Earn ₹13,483 Crore

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

This marks a significant step in India's financial sector, as SMBC's purchase of a 20% stake is set to become the largest cross-border M&A deal in the country’s financial history, while also marking Japan's largest bank's entry into the Indian market.

Key Details of the Yes Bank Stake Sale

As part of the deal, SMBC will acquire 13.19% of its stake from SBI and 6.81% from seven private banks, including HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank. The total proceeds from this transaction are expected to amount to ₹13,483 crore. This stake purchase is expected to close in the September quarter through a secondary market transaction.

The sale will be executed at ₹21.50 per share, with the participating banks having originally bought shares at ₹10 each. The Yes Bank Reconstruction Scheme, 2020, allows the banks involved in the restructuring to make this sale tax-free by exempting them from paying capital gains tax on profits. Without this exemption, banks would have been liable for a 12.5% long-term capital gains tax.

SMBC's Entry and Future Investment Plans

SMBC's purchase of a 20% stake in Yes Bank not only marks a milestone for the Japanese bank's entry into the Indian market but also signifies a strong partnership in India's financial sector. In addition to the stake purchase, SMBC is reportedly in talks to inject an additional ₹16,000 crore ($1.83 billion) into Yes Bank, through a combination of equity and debt. This additional investment is expected to further strengthen Yes Bank's balance sheet and lay the foundation for a possible shift in ownership dynamics in the future.

Timeline of the Deal

The timeline for this landmark deal is as follows:

• May: SMBC proposed to acquire a combined 20% stake from SBI and 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 also gave its approval for the proposal.

Read More: Yes Bank Shares Gain 2% as RBI Clears SMBC Board Nominees!

Conclusion

The sale of Yes Bank shares to SMBC presents a major development in India’s banking sector, with significant benefits for the involved banks. The tax-free nature of the transaction, along with the ongoing investments from SMBC, strengthens Yes Bank’s financial position, potentially setting the stage for further growth and strategic shifts in ownership.

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