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Good morning. The ceasefire agreement between India and Pakistan seems to be holding for now, with no major incidents reported in the border areas for the last 48 hours. There is also de-escalation of tensions in the trade war, as China and the US agree to slash tariffs for the next 90 days. (What is this obsession with 90-day periods?)
In today’s newsletter, will a good monsoon season wipe away urban India’s economic woes? But first, Japan’s Sumitomo Mitsui Banking Corporation says yes to Yes Bank.
SMBC invests in Yes Bank
In what will be the largest cross-border investment in an Indian bank, Japan’s Sumitomo Mitsui Banking Corporation (SMBC) is buying a 20 per cent stake in Yes Bank. Public sector major State Bank of India, and seven other lenders, will sell their combined holdings in the bank for a total of Rs134.8bn ($1.58bn), making SMBC the single largest shareholder. The transaction is awaiting approval from India’s central bank as well as the competition commission.
This is the next step in the reconstruction of Yes Bank, which has been in trouble since 2017, when stock market and banking regulatory authorities accused it of under-reporting bad loans and several other irregularities. Subsequent audits revealed a highly inflated book, the bank’s share price tanked, and founder and chief executive Rana Kapoor was asked to step down. In 2020 SBI, ICICI Bank and Kotak Mahindra Bank, among others, invested capital to rescue Yes from financial distress, taking the stakes that they are now selling.
SMBC’s investment is the first bit of good news that has emerged from Yes Bank in years. The bank is looking to its new investor to kick-start a new phase of growth, as well as hoping to benefit from their “global expertise and high governance standards”, according to managing director Prashant Kumar. Banking analysts also predict this stake sale will help Yes Bank attract capital from other global sources as well.
For the past seven years, Yes Bank has been a cautionary tale. Kapoor, who was a high profile, high-flying businessman, spent four years in jail before securing bail last year. His bank’s stock had been a market favourite, part of the benchmark index, before it all came crashing down. SMBC’s move has given the beleaguered bank a new lease of life, but it has to focus on the integrity of its internal operations before chasing growth. In a media release announcing the investment, Akihiro Fukutome, chief executive of SMBC, said it “aligns with our commitment to building lasting, value-driven relationships in the region”. Perhaps this measured, cautious approach will rub off on Yes Bank and help it finally climb out of the mess it created.
Do you think Yes Bank will become a significant player in Indian banking? Hit reply or email me at indiabrief@ft.com
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City limits
Despite fairly robust economic indicators and the central bank’s February rate cut, consumption growth in urban India remains a challenge, going by the quarterly results posted by consumer goods companies. Hindustan Unilever announced a 3.7 per cent decline in net profits, and the management commentary highlighted moderating demand in the urban market as a primary concern. Similarly, Nestlé posted a 5.2 per cent decline in profits and homegrown Dabur, which also blamed challenging business conditions in India, saw its profits decline by 8.4 per cent.
Although economy watchers would have liked to see some evidence of demand growth spurred by the interest rate cut, the next few months do look promising. The monsoons, our favourite obsession, are predicted to be early and good this year. Forecasts suggest the rainy season will start in the southern state of Kerala around May 27, a few days ahead of its usual schedule of June 1, with the weather department predicting above-normal cumulative rainfall this season. Consequently, agricultural production is expected to be good. The rural economy, which has had a good six months, will further improve. A bountiful harvest will also bring down food inflation in urban India, easing pressure on stretched wallets.
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In my view, urban consumption has stalled because of the middle class debt crisis. A February 2025 report by fintech company Perfios and PwC indicated that a third of the monthly income of tech-savvy salaried individuals in India was going towards loan repayments. Indian middle class wages have stagnated over the past decade while food prices have gone up. This, plus easy access to credit, has upended the traditional cultural caution against borrowing to consume. It will take a few consecutive quarters of prosperity for the Indian middle class to revert to a state of guilt-free consumption. But in July, when corporate numbers for the current quarter are announced, some green shoots will hopefully be visible.
Go figure
With war tensions easing, Indian stock markets had a good day yesterday, with the benchmark indices opening up nearly 2 per cent and then rising further. Only the pharmaceutical sector was muted after Trump promised to lower US drug prices by up to 80 per cent. Here’s a snapshot.
My mantra
“Change is the only constant, keep learning, keep growing.
Aalok Shah, managing director, Rothschild & Co
Each week, we invite a successful business leader to tell us their mantra for work and life. Want to know what your boss is thinking? Nominate them by replying to indiabrief@ft.com
Quick question
Do you think the worst of Trump’s disruptions to trade and the geopolitical order are over? Take part in our poll here.
Buzzer round
On Friday, we asked: Which art form, recently all the rage on social media, is said to have descended from pictographic scrolls in the 12th century?
The answer is . . . manga and anime from Japan.
Yaman Singhania was first with the correct answer. Aniruddha Dutta came second. Congratulations!
Thank you for reading. India Business Briefing is edited by Mure Dickie. Please send feedback, suggestions (and gossip) to indiabrief@ft.com.
