RBI Gives In-Principle Nod To SMBC To Set Up Wholly Owned Subsidiary In India

New Delhi, Jan 15 (KNN) The Reserve Bank of India (RBI) has given in-principle approval to Japan’s Sumitomo Mitsui Banking Corporation (SMBC) to setup a wholly owned subsidiary (WOS) in India under the 2025 guidelines for foreign banks establishing WOSs. 

With this approval, SMBC becomes only the third foreign bank to receive a WOS licence in India, after State Bank of Mauritius India and DBS Bank India, reported the Financial Express.

Conversion of Branches into Subsidiary Structure

SMBC presently operates in India through four branches in New Delhi, Mumbai, Chennai and Bengaluru and the approval will enable the bank to convert the banks into a wholly owned subsidiary and expand its local presence in the country.

The RBI will grant the final licence under Section 22(1) of the Banking Regulation Act, 1949, once SMBC complies with all conditions laid in the in-principle approval.

YES Bank Investment Brings Regulatory Focus

The approval has brought renewed focus on SMBC’s wider India strategy, especially following its investment in YES Bank, the Japanese lender acquired a 24.22 percent stake in May last year. 

Though categorised as a public shareholder, SMBC holds two board seats at the private lender, an unusual arrangement made possible through a specific RBI exemption, similar to the dispensation earlier extended to State Bank of India during YES Bank’s reconstruction. 

‘Double Presence’ Rule and Strategic Questions

SMBC’s position as both a foreign bank operating in India and an influential stakeholder in a domestic private bank has regulatory implications, as RBI norms generally discourage a ‘double presence’ within the banking system.

SMBC’s WOS approval has triggered speculation about a possible restructuring of its India operations. While no proposal has been announced, three potential scenarios are being discussed. 

SMBC has three options: continue its WOS while holding YES Bank purely as a financial investment; raise its stake in YES Bank, which would require exiting one of the two entities under RBI rules; or merge the proposed WOS with YES Bank to create a full-fledged banking platform in India.

(KNN Bureau)