Daijiworld Media Network – New Delhi
New Delhi, Jan 15: Japan-based Sumitomo Mitsui Banking Corporation (SMBC) is set to strengthen its presence in India after receiving in-principle approval from the Reserve Bank of India (RBI) to establish a wholly-owned subsidiary (WOS) in the country.
SMBC currently operates in India through four branches located in New Delhi, Mumbai, Chennai and Bengaluru. The proposed wholly-owned subsidiary will be formed by converting these existing branches into a locally incorporated entity.
In a statement issued on Wednesday, the RBI said it would consider granting a licence under Section 22(1) of the Banking Regulation Act, 1949, once SMBC complies with all conditions stipulated as part of the in-principle approval.
With the move to a WOS structure, SMBC will be required to set up a separate legal entity in India with its own capital base and a local board of directors. The bank will also have to clearly segregate the assets and liabilities of its Indian operations from those of its foreign parent, ensuring ring-fenced capital and assets within the country.
Local incorporation provides the RBI greater supervisory control over foreign banks operating in India. Under Indian regulations, a wholly-owned subsidiary, subject to necessary approvals and conditions, is also permitted to participate in mergers and acquisitions with private sector banks, within the overall foreign investment cap of 74%.
Notably, SMBC had last year acquired a 24.21% stake in Yes Bank, making it the largest shareholder in the Mumbai-based private lender.
SMBC, a key arm of the Sumitomo Mitsui Financial Group (SMFG), is Japan’s second-largest bank, with total assets of about $1.72 trillion. The bank operates across 39 countries, with nearly half of its presence concentrated in the Asia-Pacific region.
India allows up to 74% foreign direct investment in private sector banks, while the cap for public sector banks remains at 20%.