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By Siddhi Nayak
(Reuters) - Sumitomo Mitsui Banking Corp (SMBC) is close to agreement on acquiring a stake in Yes Bank, with the Japanese firm eyeing a majority 51% equity in the Indian lender, three sources familiar with the deal said on Tuesday.
If the deal goes through, it could potentially be the largest in India's banking sector, where deal-making, especially involving foreign entities, is rare.
Shares of Yes Bank soared nearly 10% at one point on Tuesday. They were up 1.6% as of 1 p.m. local time (0730 GMT), valuing the lender at 565 billion rupees ($6.7 billion).
Restrictions on ownership, stricter capital requirements, and state domination of the banking sector have curbed foreign banks' operations in India. A takeover of troubled Lakshmi Vilas Bank by Singapore-based DBS Group in 2020 was the last major deal in the sector.
SMBC, a unit of Sumitomo Mitsui Financial Group, Japan's second-biggest bank, has been in discussions with Yes Bank's largest investor, State Bank of India, and India's central bank since last year, but the negotiations faltered amid concerns over ownership and voting rights.
Now, the Reserve Bank of India (RBI) has given SMBC a verbal go-ahead and a deal structure would be announced by June, one of the sources said.
Another source said SBI "is negotiating with SMBC to chalk out the final contours of the deal, but is yet to take the proposal to the board."
Yes Bank, in an exchange filing, said that it "routinely explores opportunities" with various stakeholders, which are aimed at enhancing shareholder value. However, such discussions are "preliminary" and do not warrant disclosures, it said.
The information pertaining to these discussions is "speculative" at this time and are not factually correct, Yes Bank said, referring to reports in various media on the potential deal.
None of the sources wished to be identified as the talks are private. The RBI, SMBC and SBI did not immediately respond to Reuters' emails seeking comment.
SBI holds a 24% stake in Yes Bank, as a result of the regulator-led restructuring of the lender in March 2020.
ICICI Bank, HDFC Bank, Kotak Mahindra Bank, Axis Bank and Life Insurance Corporation of India together hold an 11.34% stake in Yes Bank.
Indian regulations need the largest shareholder of a bank to reduce their shareholding to 26% in 15 years.
For the SMBC-Yes deal, "the RBI is clear" that the Japanese firm's voting rights will be capped at 26%, the first source said.
($1 = 84.3540 Indian rupees)
(Reporting by Siddhi Nayak in Mumbai; additional reporting by Ashish Chandra and Nandan Mandayam in Bengaluru and Sam Nussey in Tokyo; Editing by Sonia Cheema, Mrigank Dhaniwala and Jacqueline Wong)
