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Banks (Finance)

SBI and Private Banks to Reap Tax Bonanza with Yes Bank Stake Sale

Strategic Insights

— 1 min read

The Indian banking sector is expected to witness a significant tax savings opportunity in the September quarter as State Bank of India (SBI) and a group of private banks sell their stake in Yes Bank to Japanese banking giant Sumitomo Mitsui Banking Corp (SMBC). The sale, valued at Rs 13,483 crore, will be exempt from capital gains tax due to a specific clause in the Yes Bank Reconstruction Scheme, 2020. This clause stipulates that banks that invested in the reconstruction of Yes Bank will not be liable to pay capital gains tax on profits from the sale of shares. The deal, which will see SMBC acquire a 20% stake in Yes Bank, is set to conclude in this quarter, with the selling banks booking the proceeds as "other income".

Key Takeaways:

  • SBI and a group of private banks will reap a tax bonanza of Rs 13,483 crore from the sale of their stake in Yes Bank to SMBC, exempt from capital gains tax due to a clause in the Yes Bank Reconstruction Scheme, 2020.
  • The Yes Bank Reconstruction Scheme, 2020 specifically states that banks that invested in the reconstruction of Yes Bank are not liable to pay capital gains tax on profits from the sale of shares.
  • SMBC has received regulatory approvals to acquire a 20% stake in Yes Bank through a secondary market transaction and raise its stake in the bank up to 24.99%.
  • The selling banks, including SBI, HDFC Bank, ICICI Bank, Kotak Mahindra, Axis Bank, IDFC First Bank, Federal Bank, and Bandhan Bank, had subscribed to shares at Rs 10 each in 2020.
  • The deal will mark the entry of Japan's largest bank in India, with SMBC set to conclude the acquisition in this quarter.

Statistics:

  • The Yes Bank Reconstruction Scheme, 2020 exemption to selling banks will result in tax savings of Rs 13,483 crore, equivalent to $1.6 billion.
  • SBI will sell 13.19% of its 24% stake for Rs 8,889 crore, while the remaining seven banks will sell 6.81% stake for Rs 4,594 crore.

Sources:

  • The Economic Times, "State Bank of India and a group of private banks are set to reap a tax bonanza..." ()
  • The Economic Times, "Yes Bank Reconstruction Scheme, 2020" ()

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