RBI Approves Japan’s SMBC to Set Up Wholly Owned Banking Subsidiary in India

On January 14, the Reserve Bank of India (RBI) gave Sumitomo Mitsui Banking Corporation (SMBC) of Japan "in-principle" approval to establish a wholly-owned subsidiary (WOS) in India. With four branches in Bengaluru, Chennai, Mumbai, and New Delhi, SMBC presently operates banking activities in India via branch format. With the 'in-principle' clearance, the Japanese lender can convert its current branches throughout the nation to become the WOS. Let us evaluate how this will shape the future of SMBC in India.

How the SMBC Received RBI’s Approval?

In a statement, the central bank announced that it would evaluate the issuance of a licence to commence banking operations in WOS mode under Section 22(1) of the Banking Regulation Act, 1949. However, the RBI added that the approval will be given once it is satisfied that SMBC has fulfilled the conditions outlined as part of the 'in-principle' approval.

The Japanese lender became the largest stakeholder in the private sector by acquiring a 24.22% interest in YES Bank in 2025. After dilution, State Bank of India (SBI), which previously owned a 24% interest, currently holds a little over 10%. As previously said, YES Bank plans to take advantage of SMBC's worldwide capabilities, especially in order to facilitate trade and investment flows between Japan and India. Supporting expansion in sectors including corporate banking, treasury services, and cross-border financial solutions is the goal of the cooperation.

Terms for Foreign Banks to Operate in India

India permits foreign banks to function as a parent company's branch or fully ownedfully owned subsidiary. DBS Bank India and SBM Bank India are the only two that do not function as branches. The bank has more flexibility with a local unit than when it operates as a branch. A few months after Sumitomo Mitsui Banking Corp. acquired 24.2% of Yes Bank in two deals, a wholly owned subsidiary was approved. The regulator has previously permitted a foreign bank's local branch to acquire a domestic lender.

The RBI took over the faltering Lakshmi Vilas Bank (LVB) in November 2020 and compelled a merger with the local branch of DBS Bank, the biggest lender in Singapore. The central bank had never before used a bank with a foreign parent to support an Indian competitor. With a few exceptions, foreign banks have found it difficult to increase their market share in India.

These banks made up 3.3% of all bank credit as of March 31, 2025, with public sector banks ranking highest at 52.3% and private banks controlling 40%. Regional rural banks and small finance banks split the remainder.