The deal with Japanese financial giant Sumitomo Mitsui Banking Corporation (SMBC) strengthens Yes Bank’s future prospects, opens doors to fresh opportunities and could potentially lead to a ratings upgrade, Prashant Kumar, managing director and chief executive officer of Yes Bank, tells Sachin Kumar in an exclusive interaction.
What are the key benefits of this deal?
This transaction addresses a long-standing overhang regarding exit options for the banks that had invested in Yes Bank during the 2020 reconstruction. With the lock-in period ending in March 2023, there were concerns about how these banks could exit and what that would mean for Yes Bank’s stability. This deal removes that uncertainty.
Importantly, the exit has been facilitated by a globally reputed institution —SMBC, the second-largest bank in Japan and ranked 15th globally. Its entry is not just about capital infusion; it signals a long-term commitment. SMBC is known for strategic, long-term investments, and its presence will help us build and scale our franchise over time.
Do you expect this deal to trigger a ratings upgrade for Yes Bank?
The possibility of re-rating of our institution is there. This transaction significantly enhances our credibility and financial strength. A re-rating could open new avenues for us — improving our ability to raise resources, lowering cost of deposits and enabling us to take on higher-quality lending opportunities. It would also boost our fee-based income and allow us to grow profitably. Essentially, this strengthens both the liability and asset sides of our balance sheet.
When can we expect rating agencies to undertake re-rating exercise?
Rating agencies, typically, reassess a bank’s profile after the declaration of annual or quarterly results. We announced our annual results on April 19, and now this deal is on the table. This development is significant for them.
There are many institutions — both public and private — that only work with banks above a certain ratings threshold. With a re-rating, new relationships and business opportunities could open up. Moreover, SMBC’s decision to invest demonstrates a high degree of confidence in Yes Bank’s franchise and future prospects.
How will SMBC’s entry influence the bank’s growth strategy?
It will be a major enabler. Once the transaction is complete and SMBC’s nominee joins our board, we will re-evaluate the business strategy to align with new opportunities that this partnership brings. When you have a strategic investor backing you, it becomes easier to make forward-looking investments that support faster growth. This not only helps in scaling, but also strengthens the market perception and customer confidence, including among depositors.
How will it impact your fundraising plans?
SMBC has a pre-emptive participation right in any future equity raise. It means whenever the bank would raise equity, SMBC will have the right to subscribe to that capital. While we don’t need capital immediately, this arrangement gives us predictability and confidence that any future requirement will be supported without market uncertainties. That’s a significant advantage.
You were talking to several players. What factors did help seal the deal with SMBC?
In any deal of this magnitude, multiple players get interested. What matters is aligning expectations on both the sides. For us, the opportunity to partner with a name like SMBC was very compelling. From their perspective, our fundamentals and future potential aligned with their strategic goals. When both sides find common grounds, the deal comes together smoothly.
Were there concerns about the asset quality during discussions with investors?
Let me clarify. The asset quality was never a concern. Our current asset quality is among the best in the industry, with net NPAs at 0.3%, gross NPAs at 1.6% and a provision coverage ratio of 80%. We are not the Yes Bank of 2020 or 2021. That chapter is behind us. We’ve built a strong, clean balance sheet.
What does SMBC gain from investing in Yes Bank?
For SMBC, this investment fills a key strategic gap. It always has a presence in the top and bottom layers of the India’s financial system. What it lacked was a commercial banking partner with a strong digital presence, deposit base and local reach. With Yes Bank, SMBC now has an end-to-end presence in the Indian financial ecosystem. It’s what I would describe as a perfect strategic fit that completes the value chain for the Japanese major.
How do you see growth playing out over the next five years?
Even before this transaction, our internal ambition was to double the size of Yes Bank in the next five years. With this strategic backing and additional firepower it brings, we are better positioned to accelerate that vision. That said, we will revisit and refine our plans once the transaction is finalised.
How will this deal help Yes Bank in raising foreign capital?
SMBC currently serves over a thousand large corporate clients, including many multinationals. These companies typically engage only with banks that meet certain credit ratings, and we were previously constrained in that regard. With SMBC’s backing, we now gain credibility to serve such clients and offer them comprehensive solutions in transaction banking, trade finance, or other services. This will also help us serve our existing corporate clients better by tapping into SMBC’s global expertise.