The Reserve Bank of India (RBI) on Friday granted in‑principle approval to Japan’s Sumitomo Mitsui Banking Corporation (SMBC) to establish a wholly owned subsidiary (WOS) in India under the RBI’s setting up of wholly owned subsidiaries by Foreign Banks Guidelines, 2025. With this approval, SMBC is set to become only the third foreign bank to receive a WOS licence in India, after State Bank of Mauritius India and DBS Bank India—the latter having merged with Lakshmi Vilas Bank (LVB) in 2020, leading to LVB’s dissolution as a standalone entity.
New Subsidiary Structure
SMBC currently operates in India through four branches in New Delhi, Mumbai, Chennai and Bengaluru, and the WOS approval allows the bank to convert these branches into a subsidiary structure, expanding its local footprint. The RBI will grant the final licence under Section 22(1) of the Banking Regulation Act, 1949, once SMBC meets all conditions laid out in the in‑principle approval.
The development has sparked renewed interest in SMBC’s growing India strategy, particularly in the context of its investment in YES Bank. In May last year, the Japanese lender had acquired a 24.22% stake in YES Bank. While SMBC is classified as a public shareholder, it holds two board seats at YES Bank—an unusual position for a public investor, enabled by an RBI-specific exemption. This mirrors the earlier exemption granted to SBI during YES Bank’s reconstruction phase. The dual presence—operating as a foreign bank in India while also holding influence in a domestic private bank—raises regulatory considerations, especially since RBI’s framework typically does not permit “double presence.”
Regulatory Presence Conflicts
“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 WOS approval has sparked speculation that it could pave the way for a reverse merger with YES Bank. While no such move is confirmed, three possible scenarios emerge from the regulatory and strategic landscape. First, SMBC may continue operating its WOS while remaining a financial investor in YES Bank, treating the stake as a capital investment that could be monetised over time. Second, SMBC could increase its stake in YES Bank, which would then require exiting one of the two businesses to comply with the RBI’s single‑presence rule. The third is a merger between SMBC’s proposed WOS and YES Bank, giving the Japanese bank 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,” said the lawyer.
On Friday, the stock of YES Bank ended 0.70% higher at Rs 22.95 per share on the BSE.