The Reserve Bank of India has granted in-principle approval to Japan’s Sumitomo Mitsui Banking Corporation (SMBC) to set up a wholly owned subsidiary in India under the RBI’s guidelines for foreign banks issued in 2025. With this approval, SMBC is set to become the 3rd foreign bank to receive a wholly owned subsidiary licence in the country, after State Bank of Mauritius India and DBS Bank India. DBS Bank India had earlier merged with Lakshmi Vilas Bank in 2020, leading to the dissolution of LVB as a standalone entity.
SMBC currently operates in India through 4 branches located in New Delhi, Mumbai, Chennai and Bengaluru. The approval allows the bank to convert these branches into a subsidiary structure, enabling a deeper and more expanded local presence. The RBI will issue the final licence under Section 22(1) of the Banking Regulation Act, 1949, once SMBC fulfils all conditions specified in the in-principle approval.
The development has renewed attention on SMBC’s broader India strategy, especially its investment in YES Bank. In May last year, the Japanese lender acquired a 24.22% stake in YES Bank. Although classified as a public shareholder, SMBC holds 2 board seats at YES Bank. This arrangement was enabled through a specific RBI exemption, similar to the exemption earlier granted to SBI during YES Bank’s reconstruction.
This dual presence—operating as a foreign bank while holding influence in an Indian private bank—raises regulatory considerations. The RBI framework generally does not allow a “double presence” for foreign banks in India.
“RBI norms require foreign banks to avoid simultaneously running a WOS and maintaining a significant presence in another Indian bank, stating the example of Emirates NBD’s investment in RBL Bank, where the RBI required either a merger or an exit from one of the businesses,” said a senior lawyer.
Against this backdrop, SMBC’s approval has triggered speculation around possible next steps. One option is for SMBC to operate its wholly owned subsidiary while continuing as a financial investor in YES Bank. Another possibility is increasing its stake in YES Bank, which would require exiting one of the two entities to comply with RBI rules. A third scenario is a merger between SMBC’s proposed subsidiary and YES Bank, creating a full-scale Indian banking platform.
“Such a move would depend entirely on the RBI’s willingness to permit it, and remains speculative at this stage,” the lawyer added.
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