SMBC’s Strategic Investment in Yes Bank

INTRODUCTION

The year 2025 witnessed a landmark development in the Indian banking ecosystem with the successful completion of the acquisition of 24% in Yes Bank Limited (“Yes Bank”) by Sumitomo Mitsui Banking Corporation, Japan (“SMBC”). This marks the largest cross-border investment in the Indian banking sector to date. The investment consisted of a secondary acquisition of equity shares from a consortium of existing shareholders of Yes Bank, consisting majorly the State Bank of India (“SBI”). The Board of Directors of Yes Bank formally recorded the completion of the transaction on 18 September 2025, making SMBC the single largest shareholder of Yes Bank, while, as on date, SBI continues to hold more than 10% shareholding, in Yes Bank.¹

The realignment of Yes Bank’s shareholding structure has significantly strengthened its governance and financial foundation, underpinned by the continued support of India’s largest public sector bank, SBI, and the strategic backing of globally renowned investor SMBC. SMBC’s scale, robust governance practices, and international banking expertise are poised to play a pivotal role in accelerating Yes Bank’s growth trajectory and enhancing its long-term profitability. 

BACKGROUND OF THE PARTIES

1. Yes Bank Limited 

Yes Bank, a full-service commercial bank headquartered in Mumbai, serves both retail and corporate customers through its digital and branch networks. Following a sharp decline in its financial health, the Yes Bank Limited Reconstruction Scheme, 2020 (“Restructuring Scheme”) came into effect on 13 March 2020.² Under this scheme, SBI became the bank’s largest shareholder, acquiring approximately 49% of Yes Bank’s share capital, with 26% mandated to remain locked in for a period of three years. Seven other banks, namely HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank, IDFC First Bank, Federal Bank, and Bandhan Bank (“Other Shareholders”) also acquired minority holdings of ranging approximately from 1 to 6%, with 75% of each of their shareholdings subject to a three-year lock-in period. As on the date of the transaction, SBI’s stake stood at 23.97%, while the Other Shareholders held between 0.70% and 2.75% each.

2. Sumitomo Mitsui Financial Group

SMBC is a wholly owned subsidiary of Sumitomo Mitsui Financial Group, Inc., Japan (“SMFG”), one of the world’s leading and largest financial institutions, based out of Japan. As of December 2025, SMFG is reported to have assets totalling to approximately USD 2 trillion and is listed on the Tokyo and Nagoya Stock Exchanges and American Depository Receipts issued on the New York Stock Exchange. SMBC also has its presence in India for several years and is already among the leading foreign banks in the country. Its group company, SMFG India Credit Company Limited, is identified among the largest diversified non-bank financial companies operating in India, adding to the group’s deep-rooted confidence and interest in the Indian financial services landscape. 

STRUCTURE OF THE TRANSACTION

SMBC acquired 4,13,44,04,897 existing equity shares from SBI, amounting to 13.19% of Yes Bank’s paid-up equity share capital, and 2,13,68,30,297 shares constituting 6.81% of the paid-up capital from Other Shareholders.³ Together, these acquisitions totalled to 6,271,235,194 equity shares, representing 20% of Yes Bank’s paid-up share capital.⁴

In addition, SMBC acquired a further 4.22% stake from CA Basque Investments, an affiliate of the Carlyle Group. With this, SMBC’s overall shareholding in Yes Bank increased to 24.21%. 

The transaction was implemented through a principal Share Purchase Agreement (“SPA”) between SBI, Yes Bank and SMBC and separate SPAs with Other Shareholders and CA Basque Investments. In addition, Yes Bank entered into separate shareholder agreements with SBI (“SBI SHA”) and with SMBC (“SMBC SHA”), which set out the governance framework, for SBI and SMBC, respectively. 

Under the SBI SHA, SBI has a right to nominate 1 ‘non-executive and non-independent’ director on the board of Yes Bank, subject to a fall away threshold of 5%.⁵ While, under the SMBC SHA, SMBC has a right to nominate 2 ‘non-executive and non-independent’ directors on the board of Yes Bank.⁶ Further, SMBC has pre-emptive rights to subscribe to new issuance of share capital of Yes Bank to maintain its pro rata shareholding, subject to fall away threshold of 10%. ⁷

KEY LEGAL ASPECTS

Banking Aspects

At the time of the transaction, any acquisition of 5% or more in a banking company required approval from the Reserve Bank of India (“RBI”) under the Banking Regulation Act, 1949⁸(“Banking Regulation Act”) read with the erstwhile Reserve Bank of India (Acquisition and Holding of Shares or Voting Rights in Banking Companies) Directions, 2023 (“Banking Companies Directions, 2023”). As per Paragraph 4.1 of the Banking Companies Directions, 2023, the acquirer was required to intimate RBI of such a transaction under Form A, basis which RBI seeks certain information from the target bank.⁹ The board of the target bank was required to deliberate upon the transaction and assess the ‘fit and proper’ status of the acquirer as per Paragraph 4.3 of the Banking Companies Directions, 2023.¹⁰ Such a board resolution needed to be furnished to RBI in Form A1 of the Banking Companies Directions, 2023.¹¹ Consequently, RBI also independently carried out a due diligence to determine the ‘fit and proper’ status of the acquirer and thereafter grants or denies approval.¹²

To ensure compliance with the Reserve Bank of India (Commercial Banks – Acquisition and Holding of Shares or Voting Rights) Directions, 2025 (“Banking Companies Directions, 2025”),  Yes Bank has to put in place a mechanism to obtain information on a continuous basis to examine concerns regarding SMBC’s status of being ‘fit and proper’ and report such information or any changes in the information previously submitted to the RBI, at the approval stage. 

Further, Paragraph 8(a)(ii) of the erstwhile Reserve Bank of India Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies, 2023 (“Banking Companies Guidelines, 2023”) the shareholding, for a non-promoter financial company, was capped at 15%.¹³  However, Paragraph 10 of the Banking Companies Guidelines, 2023 empowered the RBI to permit a shareholding of more than 15%, for the purpose of reconstruction or restructuring of a bank.¹⁴ In the current transaction, SMBC had received RBI approval to acquire up to 24.99% of the paid-up share capital of Yes Bank, while not being categorised as a promoter.¹⁵

Paragraphs 14 and 15 of the Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies, annexed to the Banking Companies Directions, 2025 state that post acquisition the acquirer’s shareholding is locked in for a period of 5 years, and such shares cannot be encumbered under any circumstances.¹⁶

FDI Aspects

The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (“FEMA NDI Rules”), prescribes that in private sector banking, foreign direct investment is permitted up to 74%, with automatic approval up to 49%.¹⁷ In the current transaction, SMBC did not require RBI approval under the exchange control framework. However, there are certain conditions which need to be complied on an ongoing basis. For instance, at all times, 26% of the paid-up capital of the bank is required to be held by residents, and all relevant rules and regulations issued by the RBI, need to be complied with.¹⁸

Taxation Aspects

Ordinarily, shareholders exiting an investment are required to pay long-term or short-term capital gains tax (depending on the duration of holding) on the difference between the acquisition cost and the sale value, as provided under the Income Tax Act, 1961 (“Income Tax Act”). Accordingly, SBI, the other shareholders and CA Basque Investments would have been subjected to capital gains tax. 

However, it is pertinent to note that clause 3(7) of the Restructuring Scheme carved out a special exemption for investors who contributed to the bank’s revival in March 2020.¹⁹ Owing to this provision, the gains realised on their exit were entirely exempt from capital gains tax.

Competition Aspects

If any acquisition meets the threshold prescribed under Section 5 of the Competition Act, 2002 (“Competition Act”) then such an acquisition needs to be reported to the Competition Commission of India (“CCI”) in Form I, in accordance with Regulation 5 of Competition Commission of India (Combinations) Regulations, 2024 (“Competition Combination Regulations”). By an order dated 2 September 2025, CCI approved SMBC’s acquisition stating that the banking market is highly fragmented and dynamic, regulated by the RBI, and comprises of several larger well established, significant and well-resourced players.²⁰ The CCI, approving the acquisition, also stated that the players in the financial service market would continue to exercise competitive constraints post the transaction. 

OUR THOUGHTS

The transaction holds paramount significance as it is one of the largest cross-border investments into an Indian private sector bank. It brings in a long-term strategic investor with deep capital strength, while also providing an exit to the banks and investors that supported Yes Bank during its reconstruction in 2020. 

For SMBC, the acquisition aligns with its broader India strategy and positions it strongly in corporate banking and cross-border financial flows, especially along the India Japan corridor. The rights given to SMBC under the shareholders agreements provide them with meaningful oversight and the ability to protect their position in the bank. 

From a regulatory standpoint, the transaction shows how India’s banking frameworks can accommodate a large and multi-party secondary acquisition smoothly. Furthermore, even the RBI’s discretionary approval for a non-promoter shareholding of up to 24.99% is notable. 

The information contained in this document is not legal advice or legal opinion. The contents recorded in the said document are for informational purposes only and should not be used for commercial purposes. Acuity Law LLP disclaims all liability to any person for any loss or damage caused by errors or omissions, whether arising from negligence, accident, or any other cause. 

1. Intimation to the NSE and BSE in relation to the Outcome of Board Meeting of YES Bank Limited held on September 18, 2025 YBL/CS/2025-26/112 dated 18 September 2025 (can be accessed at https://www.bseindia.com/xml-data/corpfiling/AttachLive/0e0e58c1-7bda-402d-8f49-a583415fc35c.pdf). ↩︎
2. Ministry of Finance, ‘Gazette notification G.S.R. 174(E) on the Yes Bank Ltd. Reconstruction Scheme, 2020’ dated 13 March 2020(can be accessed at https://thc.nic.in/Central%20Governmental%20Schemes/Yes%20Bank%20Limited%20Reconstruction%20Scheme,%202020.pdf)  ↩︎
3. Intimation to the NSE and BSE in relation to the Outcome of Board Meeting of YES Bank Limited held on September 18, 2025 YBL/CS/2025-26/112 dated 18 September 2025 (can be accessed at https://www.bseindia.com/xml-data/corpfiling/AttachLive/0e0e58c1-7bda-402d-8f49-a583415fc35c.pdf) ↩︎
4. Ibid.  ↩︎
5. Intimation to the NSE and BSE in relation to Outcome of Board Meeting of YES Bank Limited held on May 09, 2025 YBL/CS/2025-26/025(can be accessed at https://nsearchives.nseindia.com/corporate/YESBANK_13052025211321_YBL_SE_Intimation_Change_of_SMP_signed.pdf ↩︎
6. Ibid. ↩︎
7. Ibid. ↩︎
8. Section 12B of the Banking Regulation Act, 1949 ↩︎
9. Paragraph 4.1 of the Reserve Bank of India Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies, 2023 ↩︎
10. Paragraph 4.3 of the Reserve Bank of India Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies, 2023 ↩︎
11. Ibid. ↩︎
12. Paragraph 4.4 of the Reserve Bank of India Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies, 2023 ↩︎
13. Reserve Bank of India Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies, 2023, Paragraph 8(a)(ii) ↩︎
14. Reserve Bank of India Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies, 2023, Paragraph 10 ↩︎
15. Intimation to the NSE and BSE in relation to approval of the RBI to SMBC, YBL/CS/2025-26/94 dated 23 August 2025 (can be accessed at https://nsearchives.nseindia.com/corporate/YESBANK_23082025135457_YBL_SE_Intimation_SMBC_Signed.pdf) ↩︎
16. Reserve Bank of India Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies, 2025, at Paragraphs 14 and 15 ↩︎
17. The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, Regulation 6(a) read with Entry F 2 in Schedule I ↩︎
18. Ibid. ↩︎
19. Ministry of Finance, ‘Gazette notification G.S.R. 174(E) on the Yes Bank Ltd. Reconstruction Scheme, 2020’ dated 13 March 2020, clause 3(7). ↩︎
20. Competition Commission of India Press Release on ‘CCI approves acquisition of certain share capital and voting rights of YES Bank by Sumitomo Mitsui Banking Corporation’ No. 57/2025-2026 dated 02 September 2025 (can be accessed at https://www.cci.gov.in/antitrust/press-release/details/565 and https://www.cci.gov.in/images/summaryorders/en/summary1750745208.pdf) ↩︎