**Sumitomo Mitsui Banking Corp. to Establish Wholly-Owned Subsidiary in India**
The Reserve Bank of India (RBI) announced on Wednesday that it has granted in-principle approval for Sumitomo Mitsui Banking Corp. (SMBC) to set up a wholly-owned subsidiary in India. This decision comes four months after the Japanese financial institution acquired a 24.2% stake in Yes Bank, a private lender in India.
Currently, SMBC operates in India through branches located in New Delhi, Mumbai, Chennai, and Bengaluru. The RBI’s approval allows SMBC to convert its existing branches into a wholly-owned subsidiary under the Reserve Bank of India (Setting Up of Wholly Owned Subsidiaries by Foreign Banks) Guidelines, 2025. Following compliance with specific conditions, the RBI will consider granting a license for the new subsidiary to commence banking operations.
This marks the second instance in eight months where the RBI has conditionally approved a foreign bank’s establishment of a local subsidiary. In May, the central bank granted similar approval to Emirates NBD Bank PJSC, based in Dubai.
Foreign banks in India can operate as either branches or wholly-owned subsidiaries, with the latter providing greater operational flexibility. Currently, most foreign banks, with the exception of DBS Bank India and SBM Bank India, function as branches. The approval for SMBC’s subsidiary follows its recent investment in Yes Bank, highlighting the growing interest of foreign banks in the Indian market.
Historically, the RBI has permitted foreign banks to take over domestic lenders, as seen in November 2020 when it facilitated the merger of Lakshmi Vilas Bank with DBS Bank’s local unit. Despite the challenges foreign banks face in expanding their market share in India—where they accounted for only 3.3% of total bank credit as of March 31, 2025—this approval signals a potential shift in the landscape.
The retail banking sector remains particularly challenging for foreign banks due to the strong presence of Indian public and private banks. Some foreign banks have exited specific business segments in India, with Citibank recently selling its consumer banking operations to Axis Bank for ₹11,603 crore in 2023.
In conclusion, the RBI’s approval for SMBC to establish a wholly-owned subsidiary in India reflects the ongoing evolution of the banking sector and the increasing participation of foreign financial institutions in the Indian market.
**FAQ**
*What does the RBI’s approval for SMBC mean for the Indian banking sector?*
The RBI’s approval allows SMBC to operate more flexibly in India, potentially enhancing competition in the banking sector and providing more options for consumers.
