Proxy advisors want shareholders to reject Yes Bank's special privilege to SMBC

Mint

21 hours ago

BENGALURU
:
Yes Bank Ltd's decision to give the Japanese Sumitomo Mitsui Banking Corp (SMBC) the right to place its nominee directors on the lender's key board committees, including the audit and nomination and remuneration panels, has prompted two proxy advisory firms Institutional Investor Advisory Services India Ltd (IiAS) and Stakeholder Empowerment Services (SES) to recommend investors to vote against the proposal.
IiAS recommendations to investors to reject the proposal that gives Yes Bank's two largest investors (including State Bank of India) special rights will test the resolve of shareholders as the voting for the proposal starts on 18 August and ends on 20 August, according to two investors.
Yes Bank is expected to declare the results after the Annual General Meeting on 21 August.
"SBI will have the right to nominate an SBI Director on each of the committees of the Board," said the IiAS note to investors. "SMBC will have the right to nominate at least one SMBC Director on each of the committees of the Board, i.e. the Audit Committee, Nomination and Remuneration Committee and Risk Management Committee....We do not favour provisions that allow committee nomination rights as we believe board committee composition is a prerogative of the board and must be decided by the board independently," said IiAS.
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"We do not support the resolution," said IiAS.
SES only recommended investors to reject Yes Bank's decision to give special rights to SMBC, although the proxy advisory firm okayed a similar treatment given to SBI.
"The Bank has disclosed that SMBC shall have customary alternate directorship rights in respect of the SMBC Directors. SES, as per policy, is against the appointment of alternate directors unless the Bank provides compelling reasons for the same. SES is of the view that presently, with the law having recognised video-conferencing for conducting and attending Board meetings, the concept of alternate director has lost its relevance," said SES in its note.
Shareholding and special resolution
Giving special rights to SMBC needs a special resolution, which implies that three-fourths or 75% of shareholders must approve. Yes Bank does not have a promoter and public investors own all shares. Banks owned 33.70% of Yes Bank at the end of June 2025, followed by foreign institutional investors, which owned 26.9%. Retail investors owned 29.3% while the remaining 10% is owned by mutual funds and insurance companies.
For now, State Bank of India is the largest investor, owning 24%, while a private equity firm, Advent International, owns 9.2%. In May, SMBC agreed to buy a 20% share in Yes Bank for about ₹13,500 crore ($1.6 billion) from SBI, and private sector banks including HDFC Bank, Kotak Mahindra Bank and ICICI Bank. After all regulatory approvals, SBI's ownership would drop to 10.8%.
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Emails sent to Yes Bank, SBI and SMBC seeking comment went unanswered.
As per the share purchase agreement signed between Yes Bank and SMBC, the Japanese bank can appoint two non-independent directors on the bank's board as long as it owns at least 15% shares.
For now, it is not clear how investors would react to IiAS's recommendation. Still, at least one investor said even if the resolution gets rejected, the proposed transaction with SMBC would not get scuttled.
"IiAS wants pristine corporate governance and hence I see the rationale why they have recommended investors to reject the resolution," said an investor on the condition of anonymity. "When proxy advisory firms put out a vote, it is not easy for most institutions, especially the foreign money managers, to override proxy advisory firms' recommendations as internally they have to reason out why they supported or voted against (the proposal)."
"However, I don't believe this clause of a committee representation would be a deal-breaker and one would hope both Yes Bank and SMBC to agree to tweak the shareholder agreement, if needed, on this particular clause"
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Yes Bank's chair is former Reserve Bank of India deputy governor Rama Subramaniam Gandhi, while Prashant Kumar is the chief executive officer. Sandeep Tewari and T.K. Kumar are SBI's nominee directors and part of the 14-member board at Yes Bank.