Japanese major Sumitomo Mitsui Financial Group (SMFG) may merge its Indian non-bank arm SMFG India Credit with YES Bank after its group entity SMBC completes acquiring 20 per cent stake in YES Bank, sources told businessline.
“Technically, if Sumitomo wants to increase stake in YES Bank, since they already have a NBFC in India — SMFG India Credit — they may want to merge that NBFC with YES Bank. This is because of the RBI’s norms that for lending side businesses, banks should have a single point of presence. If they really want to expand presence in India, they should go for that move otherwise there are only so many things you can do with 20 per cent stake,” said Abizer Diwanji, Founder of NeoStrat Advisors
Merging SMFG India Credit with YES Bank becomes important as the Reserve Bank of India’s (RBI) guidelines do not allow banks to own subsidiaries which are active in same segment of lending as the bank. SMFG India Credit offers home loans, business loans, personal loans, among others; segments where YES Bank already has exposure. YES Bank and SMFG India Credit did not respond to businessline queries till press time.
SMBC-YES Bank deal
Last week, Sumitomo Mitsui Banking Corporation (SMBC), a wholly-owned subsidiary of SMFG, entered into a definitive agreement to acquire 20 per cent stake in YES Bank through a secondary stake purchase of 13.19 per cent from State Bank of India and 6.81 per cent aggregate stake from other bank shareholders, including Axis Bank, Bandhan Bank, Federal Bank, HDFC Bank, ICICI Bank, IDFC First Bank and Kotak Mahindra Bank.
“The fact that SMBC have been allowed to have two directors on board, intuitively it gives a feeling that they want to acquire more stake. If they want more stake, they will have to merge that entity. Following the merger, the stake of SMBC in YES Bank may increase and trigger an open offer, which could enable them to pick 50-51 per cent stake in the bank. It will make logical sense to consolidate various similar lines of businesses,” Diwanji said.
Banks’ capital boost
SMBC’s proposed transaction to acquire 20 per cent stake in YES Bank is also likely to aid investor banks’ capital ratio.
According to Morgan Stanley Research, SBI would likely see its common-equity tier-I ratio (CET-1) rising by 12 basis points (bps) post completion of the transaction, while Federal Bank may see 8 bps rise in CET-1 ratio. For the remaining investor banks, the potential gains to CET-1 ratio could be less than 5 bps.