India's rescued Yes Bank is ripe for a new owner
The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Updates to add graphic.
By Shritama Bose
MUMBAI, July 16 (Reuters Breakingviews) -Foreigners have their place. The potential sale of a 51% stake in India's $10 billion Yes Bank YESB.NS could yield chunky returns for its 2020 saviours, especially if a global lender steps up to follow Singapore's DBS DBSM.SI into the market.
Domestic interest in the tech-savvy lender is limited, not least because India already has some 33 banks, and it bars conglomerates such as Reliance Industries RELI.NS from being owners. However, buyers from countries whose strategic ties with India are deepening are circling.
The United Arab Emirates' First Abu Dhabi Bank FAB.AD last week denied it was evaluating any offer. Japan’s Mitsubishi UFJ Financial 8306.T and Sumitomo Mitsui Financial 8316.T are keen, Bloomberg reported citing unnamed sources.
For 24% owner State Bank of India SBI.NS, it's time for a sale. A three-year lockup on its investment ended in 2023. Private equity groups including Advent International and Carlyle CG.O have taken stakes in the bank too, though they are financial rather than strategic investors.
A dedicated owner could grow Yes, which boasts 7.5 million customers, and improve its efficiency. It offloaded soured assets to a unit backed by JC Flowers in 2022, and its remaining $27 billion loan book is 22%higher than the level prior to its bailout. CEO Prashant Kumar's goal to more than triple the return on assets to 1% by 2026 would still leave it well below the 2.4% ICICI Bank ICBK.NS is logging.
Yet India demands more patience than overseas institutions have shown so far. High competition and steep compliance squeezed ABN Amro ABNd.AS and RBS out of the market. India was one of the 13 geographies where Citi C.N exited from the consumer business since 2021.
Although India clocked the third highest profit before tax figure within its global businesses for HSBC HSBA.L in 2023 behind Hong Kong and the UK, the bank has flipflopped in its commitment to the market over the years. DBS integrated a small local bank it mopped up in 2020 and is growing the business. Overall, foreign lenders account for just 3% of outstanding bank loans.
Yet the regulator has an incentive to smooth a stellar exit for SBI. It would shore up a template to resolve any future banking crises. Yes shares trade at twice the price SBI paid for them in 2020. With the right owner, Yes could trade like other private banks at a multiple of three times its book value, up from two times. There's a lot riding on this sale.
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CONTEXT NEWS
First Abu Dhabi Bank on July 11 denied evaluating any possible offer for a stake in India's Yes Bank.
Citing sources, Bloomberg on July 11 reported the Middle Eastern lender was weighing a bid for as much as a 51% stake in the Indian bank and said Japan’s Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group were also interested buyers.
Indian lenders hold a combined 34% stake in the $10 billion Yes Bank, with State Bank of India being the single largest shareholder owning 24%.
Graphic: State Bank of India owns close to a quarter of Yes Bank https://reut.rs/3LpJtmg
Editing by Una Galani and Aditya Srivastav
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