In today’s Finshots, we ask if it’s finally time for Yes Bank to find a new owner.

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The Story

In March 2020, Yes Bank was a ticking time bomb. The once high-flying private lender, known for aggressive lending and flashy quarterly numbers, had hit a wall. The Reserve Bank of India (RBI) uncovered that the bank’s non-performing assets (or NPAs—loans that borrowers had stopped repaying) were nearly 7 times higher (at about ₹4,900 crores) than what the bank has reported. And just like that, losses enlarged, depositors lost confidence and the bank started losing its market share. It was a big hit for the banking industry. After all, Yes Bank had, at one point, been the fastest growing private sector lender in India.

That’s when the RBI swooped in. It slapped a moratorium, which is basically a temporary freeze in the bank’s operations which also limited customer withdrawals to ₹50,000 per account. It’s meant to prevent a bank run and buy time to fix the crisis. The central bank also stitched together a rescue plan for the lender. It fired the board and handed over the keys to a rescue team led by State Bank of India (SBI). And in a matter of days, the SBI-led consortium, including ten other private lenders like HDFC, ICICI, Axis, Kotak, injected ₹10,000 crores and picked up a combined 49% stake in the bank. And Yes Bank had been pulled back from the brink.

But everyone knew this was only a stopgap until a more permanent solution arrived. And now, five years later, the rescue team wants out.

SBI, which now holds 24% after some dilution (from 30% stake in 2020), never wanted to stay forever. Plus, with the three-year lock-in over since March 2023, it’s finally shopping around for a buyer.

And just days back, news broke that Sumitomo Mitsui Banking Corporation or SMBC — Japan’s second largest bank, is circling Yes Bank with plans to acquire up to a 51% stake.

Now, Yes Bank has denied that any offer is on the table. But the fact that there’s big noise around this development itself raises a few questions. Because if any such deal goes through, it’ll be the first time a large foreign bank takes over a major private sector Indian bank.

And you can see why the timing looks perfect.

The bank is no longer bleeding. In 2022, it offloaded nearly ₹48,000 crore worth of bad loans to a stressed asset buyer — JC Flowers ARC. That cleanup has helped its gross NPA ratio fall to just 1.6% today, a sharp drop from the peak of 17% during the crisis years. And net NPAs (what remains after expected recoveries) are now down to just 0.3%, a level even top banks would be happy with.

Then there’s the pivot in how it lends money.

Back then, the bank lent heavily to stressed corporations like IL&FS, DHFL, Jet Airways and Reliance ADAG. Those bets blew up, and the bank, then led by co-founder Rana Kapoor, tried to paper over the cracks. That’s when the troubles began.

But under the new management, led by ex-SBI veteran Prashant Kumar, it has trimmed its corporate loan exposure and has shifted its focus to retail and MSME lending. And doing so, it’s inching back into the black. Net profit for FY25 stood at ₹2,406 crores, a nearly 92% jump from the previous year. Deposits rose 7% to ₹2.85 lakh crores and they are up over 2.5 times since 2020. Capital buffers are healthy, with a capital adequacy ratio of 15.6% and Common Equity Tier 1 capital (CET1), a measure of a bank’s core capital available to absorb losses, standing at 13.5%.

In simple terms, Yes Bank now has enough financial cushion to weather bad loans, grow its lending book and meet regulatory standards.

But here’s the thing. A cleaner balance sheet doesn’t always make a stronger business.

Yes Bank still can’t match the firepower of its private sector peers. Its return on equity (ROE) is just 5% — a metric that tells you how efficiently the bank generates profit using shareholder money. And in comparison, this is lower than the private banks which clock ROEs in double digits of about 15%. Its CASA ratio, which is simply a measure of banks' low-cost deposits like current account and savings accounts (CASA), is at 34.3%, while others like ICICI and Kotak are around 40%. That matters because lower-cost deposits translate to higher margins.

Speaking of margins, Yes Bank’s Net Interest Margin (NIM) is only 2.5%, versus 4% for other private lenders. That gap reflects just how much harder Yes Bank has to work to make money from lending.

Because after the crisis, it had to lure depositors back with higher interest rates. Meaning, it pays more for funds. And with limited pricing power on the lending side, its spreads are squeezed.

That’s where a strategic buyer could change the game.

Let’s say it’s SMBC. It won’t be just looking to park capital with the acquisition. India is one of the few major economies growing at 7% annually. And unlike in Japan, where interest rates have hovered near zero for decades, Indian banks earn healthy spreads. Yes Bank would also offer instant scale to a buyer. Over 1,200 branches, ₹2.85 lakh crore in deposits, and a ready retail franchise. And building this from scratch in India’s tightly regulated banking system would take years. Yes Bank, despite its scars, is a shortcut for any buyer.

But if that’s the case, then why hasn’t this happened already, you ask?

Well, because the RBI rules capped any single foreign investor’s voting rights in a bank at 26%, even if they held a higher ownership stake. The logic? To prevent any single foreign entity from fully controlling a domestic bank. While that gave comfort to policymakers, it scared off serious investors for Yes Bank. After all, why would anyone buy a major stake if they can’t actually control it?

But now, the RBI has also approved SMBC’s interest—on the condition that voting rights remain capped at 26% for now. But the very fact that a major stake is on the table signals something bigger. That the RBI is open to letting market forces take over, now that the state has done its job.

Which brings us to the other side of the table: the sellers.

For SBI, this could be a timely exit. Its shares were acquired at ₹10 apiece. If it sells the entire stake, it could walk away with a profit of ₹10,000 crore or more. The same math applies to other banks that joined the rescue like ICICI, HDFC, Axis.

Retail investors, however, have had a rougher ride. Those who bought in the pre-crisis era are still sitting on massive losses. The share price is nowhere close to its 2018 highs of about ₹350. For many, it’s been years of dead capital. But a strategic takeover might put the bank on growth and possibly unlock value. And the markets say as much. Every time acquisition rumours surface, Yes Bank’s stock pops.

Still, there are risks.

Yes Bank’s turnaround is real, but it isn’t complete. Its core profitability is something to look at. Because much of its recent profit bump came from lower provisioning. Meaning, the bank set aside less money for potential bad loans. And this reduction in provisions has had a positive impact on the bank's bottom line. Take the latest quarter, for instance. Provisions decreased by 32.5% from a year ago to ₹3.18 billion, which padded profits. And this decrease in provisions was despite the gross NPA ratio remaining the same over the last quarter and dropping just 0.1% from 2024, which means asset quality didn’t improve—it just didn’t get worse.

There’s also a legal cloud hanging over the bank. Back in 2020, Yes Bank wrote off ₹8,415 crore of AT1 bonds (a kind of perpetual debt that gets wiped out in a crisis). Bondholders sued. The Bombay High Court ruled in their favour. But the Supreme Court has extended its stay on that order. And if the ruling goes against the bank, it might be forced to compensate bondholders, wiping out a chunk of its capital buffer.

And then comes the integration challenge. A foreign bank taking over an Indian lender is no plug-and-play job. SMBC would have to adapt to Indian rules. From mandatory rural lending to strict capital norms, all while sharing board control with other shareholders until voting rights are fully liberalized from 26%. So even if SMBC gets a higher than 50% stake, it’ll have to co-steer the ship with Indian shareholders for a while.

So, is this going to be another short-term fix where someone new takes the wheel only to clean up another mess later? Or is this finally Yes Bank’s long-awaited rebirth?

We don’t know to be honest.

But even with all that, this could still turn out to be one of the telling turnaround stories in Indian banking—if the takeover talks actually go through. And signs are emerging. Just today, SBI announced it will sell a 13% stake in the lender to SMBC at ₹21.50 per share.

We might see more such developments in the days ahead. And if it plays out, it’ll mark the journey of a lender once vilified for mismanagement, rescued by the state, nursed back to health, and then handed over, repaired and ready, to a foreign powerhouse.

Until then…

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