Japan's SMBC gets RBI nod to open India subsidiary after Yes Bank stake deal

The Reserve Bank of India (RBI) on Wednesday said it has decided to allow Sumitomo Mitsui Banking Corp. (SMBC) to operate a wholly-owned arm in India, four months after the Japanese financial services giant acquired nearly a quarter of private lender Yes Bank.

RBI said that Sumitomo Mitsui Banking Corp. currently has operations in India in branch mode from its offices in New Delhi, Mumbai, Chennai and Bengaluru.

The central bank "has decided to grant ‘in-principle’ approval to [SMBC] for setting up a Wholly Owned Subsidiary (WOS) in India, under the Reserve Bank of India (Setting Up of Wholly Owned Subsidiaries by Foreign Banks) Guidelines, 2025,” according to an RBI statement.

The ‘in-principle’ approval will allow the institutional lender to set up a wholly-owned subsidiary in the country by converting its existing branches in India. If satisfied with certain compliances following this conditional nod, RBI said it will consider granting the foreign lender a licence to start its banking business under the new subsidiary.

This is the second foreign bank to receive a conditional nod from RBI to open a local subsidiary in eight months. In May, RBI said it has decided to grant in-principle approval to Dubai-based Emirates NBD Bank PJSC to establish a wholly-owned arm in India.

Branch vs subsidiary in Indian banking

India allows foreign banks to operate either as a branch or wholly-owned subsidiary of the parent. All except two — DBS Bank India and SBM Bank India — work as branches. A local unit gives more flexibility to the bank than when operating as a branch.

The approval for a wholly-owned subsidiary comes a few months after Sumitomo Mitsui Banking Corp. bought 24.2% in Yes Bank in two transactions.

In the past, the regulator has allowed the local arm of a foreign bank to take over a domestic lender. In November 2020, RBI had seized control of the struggling Lakshmi Vilas Bank (LVB) and forced a merger with the local unit of Singapore’s largest lender DBS Bank. That was the first time the central bank had tapped a bank with a foreign parent to backstop an Indian rival.

Foreign banks have found it an uphill task to grow market share in India barring a few areas. As of 31 March 2025, these banks accounted for 3.3% of the total bank credit, with private banks cornering 40% and public sector bank topping the list at 52.3%. The remaining is divided between small finance banks and regional rural banks.

The difficultly for foreign banks has been more pronounced in retail operations, given the deep on-ground presence of Indian public sector and private banks. In fact, a clutch of foreign banks have exited certain businesses in India, the latest being Citibank which sold its consumer banking business for ₹11,603 crore to Axis Bank in 2023.