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Yes Bank sale to augment capital position of banks

SBI remains the biggest beneficiary with capital gains of INR41.7b (post tax)

Eight major Indian banks—SBI, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank, IDFC First Bank, Federal Bank, and Bandhan Bank—have announced a combined sale of their 20% stake in Yes Bank to Japan’s Sumitomo Mitsui Banking Corporation (SMBC) for INR134.83b at INR21.5 per share. This deal will reduce the collective stake of these banks from 33.71% to 13.71%, with SBI divesting 13.19% and the other seven banks collectively selling the balance 6.81%. All these banks originally acquired Yes Bank shares at INR10 per share during a 2020 bailout package led by SBI to rescue Yes Bank from financial distress caused by distressed loans and capital shortfalls.

Post-tax gains to be highest for SBI at INR41.7b

The stake sale in Yes Bank is expected to unlock capital and generate substantial post-tax gains for participating banks. SBI stands to benefit the most, with an anticipated post-tax gain of INR41.6b—equivalent to 94bp of its FY25 net worth and an 11bp improvement in its capital-to-RWA ratio. Bandhan Bank is also set to realize significant gains, amounting to 63bp of its FY25 net worth and 11.6bp of capital as a % of RWA. Meanwhile, Federal Bank and IDFC First Bank are projected to see gains of about 50bp of their net worth. Other banks are expected to report more modest post-tax gains, ranging between 10- 20bp of their net worth.

Transaction to improve liquidity position of banks

The Yes Bank stake sale comes amid the broader trends in the Indian banking sector, characterized by moderating credit growth (~11%), elevated LDR of ~80%, macro-geopolitical uncertainties and potential rise in provisioning expenses across most banks. This unlocking, though small, helps to improve liquidity position and provides a favorable environment for banks to leverage their enhanced CET-1 capital for strategic lending. The transaction also highlights the attractiveness of India’s banking sector to foreign investors, with SMBC’s investment further boosting confidence in the country’s growth potential. CET-1 gains thus position the seller banks to navigate through the sectoral challenges while pursuing growth without putting pressure on capital ratios.

Yes Bank stake sale to yield 16.5% CAGR return for investor banks

Initially perceived by the banking sector as an enforced investment, the sale of a 20% stake in Yes Bank to SMBC has yielded a 16.5% CAGR for the eight banks. At the transaction price of INR21.5 per share against an acquisition cost of INR 10, SBI will realize INR41.6b in capital gains (post-tax), while the value of the residual stake will also amount to INR72.7b (inc. cost). The deal, enhancing CET1 ratios by 2-11bp for underlying banks, has turned a perceived risk into a strategic win and will strengthen the overall financial resilience of the banking system.

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