The State Bank of India (SBI) and seven private sector lenders, who had invested in Yes Bank during its reconstruction in 2020, have announced the sale of a 20% stake in the bank to Japan-based Sumitomo Mitsui Banking Corporation (SMBC) for Rs 13,482 crore.
This cross-border deal marks the largest of its kind in the industry.
The SBI will be divesting a portion of its investment in Yes Bank, made in March 2020 at Rs 10 per equity share, to Sumitomo Mitsui Banking Corporation at Rs 21.50 per share. SMBC, a part of Sumitomo Mitsui Financial Group (SMFG), will now become the largest investor in the private sector bank.
Renowned expert and Sebi registered RA A K Mandhan highlighted SBI’s strategic move in his social media post, emphasizing the impressive 16% Internal Rate of Return (IRR) that the bank has earned from this investment.
Mandhan praised SBI’s foresight in investing in a financially distressed company like Yes Bank,. Despite the challenges faced by the bank and its lack of a founder, achieving a 16% IRR from such an investment is indeed commendable.
“SBI paid 10 INR per share for troubled YES Bank in 2020. SBI is now offloading. 413 Cr shares for 21.5 INR/share, making a 115% gain in about 5 years. A 16% IRR from a bankrupt company without a founder is quite something. YES Bank’s turnaround will be a real story, powered by SBI,” Mandhan noted.
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SBI’s investment in YES Bank
SBI’s investment in Yes Bank has resulted in a successful return of approximately 14.5%, based on the share purchase agreement (SPA) recently entered into with Sumitomo Mitsui Banking Corporation (SMBC). The large Indian bank originally invested Rs 6,050 crore in March 2020, acquiring a 49% stake at Rs 10 per equity share.
It has now agreed to sell 13.19% of its stake for around Rs 9,000 crore, while still retaining a 10.78% shareholding in Yes Bank. Along with SBI, other private banks with stakes in Yes Bank include HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, Federal Bank, IDFC First Bank, and Bandhan Bank. Despite the dilution of its ownership over the years, SBI can potentially benefit from future gains on its remaining shareholding in Yes Bank.
Bank Stake Sale Data
| Bank | Stake Sold (%) | Consideration (₹ Crore) | Gain (₹ Crore) | Remaining Stake (%) |
|---|---|---|---|---|
| SBI | 13.2 | 9000 | 4760 | 10.8 |
| HDFC Bank | 1.9 | 1300 | 690 | 0.8 |
| ICICI Bank | 1.7 | 1130 | 600 | 0.7 |
| Kotak Mahindra Bank | 0.8 | 570 | 310 | 0.4 |
| Axis Bank | 0.7 | 470 | 250 | 0.3 |
In 2020, SBI bought Rs 10 per share of YES Bank after the latter faced severe financial trouble and was on the brink of collapse. SBI’s decision to invest in YES Bank came as part of a rescue package aimed at stabilizing the bank and ensuring it did not fail, which could have had severe implications for India’s banking sector.
Now, after about 5 years, SBI is offloading 413 crore shares of YES Bank at Rs 21.5 per share. This sale represents a 115% gain on their initial investment, meaning they’ve more than doubled their money in just five years. The sale reflects a major turnaround for YES Bank, which, at the time of SBI’s initial purchase, was effectively bankrupt and lacked strong leadership (as the bank’s founder had been removed).
The 16% Internal Rate of Return (IRR) that SBI earned from this investment is impressive, especially considering that the bank had no founder and was facing severe operational and financial challenges at the time of purchase. An IRR of 16% from a company on the verge of collapse is a remarkable achievement, showing the effectiveness of SBI’s involvement and the recovery efforts.