What will happen to Yes Bank now that the RBI has allowed Japan's SMBC to establish a subsidiary in India?

The Reserve Bank of India's in-principle approval for Japan's largest bank, Sumitomo Mitsui Banking Corporation (SMBC), to convert its Indian branches into subsidiaries has caused Yes Bank's stock to rise 2.75 percent on January 16. This suggests that SMBC may have a larger interest in Yes Bank. The enthusiasm displayed by Yes Bank stock may be explained by the fact that it is more than just an equity subsidiary of the Japanese major and could pave the way for something more significant. SMBC is now the fourth foreign bank in India to choose this business model after receiving an in-principle approval to operate as a subsidiary. The recent Emirates NBD-RBL Bank merger is one example of a previous incident where a foreign bank obtained a comparable approval from the banking authority after acquiring a controlling stake in a mid-sized private bank. Will Yes Bank be another example that SMBC sets? The subsidiary model's applicability SMBC is making a long-term commitment by becoming a subsidiary of a foreign bank in India. Whether it is a branch or subsidiary of a foreign bank in India, the laws are essentially the same. It will benefit from local taxation and decision-making, which would be crucial in India. To put things in perspective, once established as a subsidiary of a foreign bank in India, the regulator may question the persistent flip-flop in approach that we have witnessed across foreign banks, from BNP Paribas, Barclays, and Standard Chartered in the middle of 2010 to HSBC, Citibank, and now Deutsche Bank. Foreign bank subsidiaries that are flush with foreign currency equity may have an advantage when it comes to pricing liabilities and going to the market on deposits if they are handled properly. Is it possible for them to steer clients away from HDFC Bank, ICICI Bank, and Axis as subsidiaries? Even for SMBC, that would be a difficulty. Its 24.99 percent investment in Yes Bank gives it the upper hand, and with the approval to establish a subsidiary in India, it is evident that a bigger play is about to begin. However, SMBC has a lot of factors to take into account, in contrast to the speed with which the Emirates NDB-RBL Bank agreement was put together. There are several aspects involved. In addition to its current branches in India, SMBC operates SMFG India Credit, a subsidiary of its parent company (SMFG). The company has an affordable housing entity and is well-known for its strength in the unsecured retail SME loans market. Yes Bank's retail-related problems might be greatly resolved by the industry SMFG India Credit works in. In other words, SMFG India Credit can resolve a significant balance problem that Yes Bank has been facing for three years. But in August of last year, SMFG India Credit hired a new CEO, and Ravi Narayanan might want to make sure his business is truly prepared for a deal by checking a few boxes. Additionally, SMBC has a strong presence in GIFT City. As a result, SMBC faces challenges in contrast to Emirates NDB India, which operated solely through branches. If SMBC decides to grow its interest in Yes Bank beyond 25%, a merging of these organizations under one roof may also help resolve the issue of an open offer, but the procedure may also take some time. As a result, Yes Bank will continue to be the center of attention for the next one to two quarters, and as it has done for more than two years, its present management will need to defend the reasons for the bank's lackluster development. Clarity regarding Prashant Kumar's successor when his term expires on April 5, 2026, as well as the makeup of the bank's CXO club, may cause the stock to be rated again.