By Siddhi Nayak and Anton Bridge

MUMBAI/TOKYO (Reuters) -Japanese lender Sumitomo Mitsui Banking Corporation (SMBC) has signed a definitive agreement to take a 20% stake in Indian private lender Yes Bank, a deal that marks the largest cross-border merger and acquisition deal in India's financial sector.

The total value of the deal, which involves SMBC buying shares from eight existing shareholders, comes up to 134.8 billion rupees ($1.58 billion), Sumitomo Mitsui Financial Group said in a statement.

SMBC, is a unit of Sumitomo Mitsui Financial Group and is Japan's second-biggest bank.

Restrictions on ownership, stricter capital requirements, and state domination of the banking sector have made cross-border deals a rarity across Indian banks. A takeover of troubled Lakshmi Vilas Bank by Singapore-based DBS Group in 2020 was the last major deal in the sector.

SMBC's stake purchase in Yes Bank, which will make it the largest shareholder in the lender, also marks the latest major overseas acquisition by a Japanese financial institution as they look to secure new sources of growth after years of rock bottom interest rates at home and a shrinking domestic population.

Last month investment bank Nomura acquired Macquarie Group's U.S. and European public asset management businesses for $1.8 billion and last December Nippon Life Insurance made Bermuda-based Resolution Life a wholly-owned subsidiary for around $8.2 billion.

As part of the deal, SMBC will acquire a 13.19% stake from State Bank of India, also its largest investor, and an aggregate of 6.81% from Axis Bank, Bandhan Bank, Federal Bank, HDFC Bank, ICICI Bank, IDFC First Bank Limited and Kotak Mahindra Bank, Yes Bank said in a stock exchange filing.

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.

The transaction is subject to regulatory approvals from the Reserve Bank of India, Competition Commission of India and shareholders of the Bank, Yes Bank said.

SMBC's investment "marks a pivotal step in our next phase of growth," CEO Prashant Kumar said in the release.

SMBC was advised by financial advisors JPMorgan and Jefferies, Yes Bank said.

Reuters had reported this week that SMBC was close to agreement on acquiring a stake in Yes Bank and had received a verbal go-ahead from the central bank.

Shares of Yes Bank closed nearly 10% higher ahead of the announcement on Friday and have gained 2.2% so far this year.



($1 = 85.3990 Indian rupees)

(Reporting by Siddhi Nayak in Mumbai and Anton Bridge in TokyoEditing by David Goodman and David Evans)