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

The Reserve Bank of India (RBI) said on Wednesday that 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 almost a quarter of private lender Yes Bank.

Sumitomo Mitsui Banking Corp. is currently operating in branch mode in India from its offices in New Delhi, Mumbai, Chennai and Bengaluru, the RBI said.

Central bank decides to give approval “in principle” [SMBC] To set up a Wholly Owned Subsidiary (WOS) in India under the Reserve Bank of India (Establishment of Wholly Owned Subsidiaries by Foreign Banks) Guidelines 2025, according to the RBI statement.

The ‘in principle’ approval will allow the corporate lender to convert its existing branches in India and set up a wholly owned subsidiary in the country. The RBI said if it is satisfied with certain compliances after this conditional approval, it will consider granting license to the foreign lender to start banking business under the new subsidiary.

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

Branch and subsidiary in Indian banking

India allows foreign banks to operate as branches or wholly owned subsidiaries of the parent company. All but two (DBS Bank India and SBM Bank India) operate as branches. A local unit gives the bank more flexibility than operating as a branch.

The approval for a wholly owned subsidiary comes a few months after Sumitomo Mitsui Banking Corp. acquired a 24.2% stake 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, the RBI took control of the struggling Lakshmi Vilas Bank (LVB) and forced it to merge with the local unit of Singapore’s largest lender DBS Bank. This was the first time the central bank had tied up with a bank with a foreign parent to support an Indian rival.

Foreign banks find it a challenging task to increase market share in India, except in a few areas. As of March 31, 2025, these banks accounted for 3.3% of total bank loans, with private banks surpassing 40%, while the public sector bank tops the list with 52.3%. The remainder is shared between small finance banks and regional rural banks.

The challenge experienced by foreign banks has become more evident in retail operations, given the deep presence of the Indian public sector and private banks in the field. In fact, a number of foreign banks have abandoned certain businesses in India; the most recent of these was Citibank, which sold its consumer banking business in 2004. ₹11,603 crore to Axis Bank in 2023.