SBI and Other Banks may not pay Tax for sale of Stake in Yes Bank

The State Bank of India (SBI) and seven other private banks are set to gain a tax-free income of ₹13,483 crore from their stake sale in Yes Bank to Japan’s Sumitomo Mitsui Banking Corp (SMBC).

SMBC is likely to finalise the deal to buy a 20 per cent stake through a secondary market transaction in the September quarter. This will be the largest cross-border merger and acquisition deal in India’s financial sector. The deal will also mark the entry of Japan’s largest bank into India.

SBI will sell 13.19 per cent of its 24 per cent stake for ₹8,889 crore. Whereas seven private banks—including HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank—will sell a combined 6.81 per cent for ₹4,594 crore.

According to the report by The Economic Times, the proceeds from the deal will be booked as “other income”. The Yes Bank Reconstruction Scheme, 2020 has a specific clause exempting banks that invested in the reconstruction from paying capital gains tax on profits from the sale of shares. The clause was added to encourage banks to participate in the restructuring.

Without any exemption, banks would have had to pay 12.5 percent as long-term capital gains tax. However, now banks may be exempt and could save this money.

SMBC is also in talks to inject an additional ₹16,000 crore ($1.83 billion) into Yes Bank through a mix of equity and debt, according to a report by The Economic Times. The infusion is expected to strengthen the bank’s balance sheet and could mark the beginning of a more significant ownership shift.