Sumitomo Mitsui Banking Corporation (SMBC), Japan's second-largest banking group, is reportedly seeking approval from the Reserve Bank of India (RBI) for a license to operate a wholly-owned subsidiary in India. This move is seen as a strategic step towards acquiring a controlling stake in Yes Bank, a private sector lender.

SMBC's interest in Yes Bank became evident on May 9, 2025, when it signed a definitive agreement to acquire a 20% stake from State Bank of India (SBI) and a consortium of other private banks for ₹13,483 crore through secondary market transactions. This initial investment signaled SMBC's commitment to the Indian market and its confidence in Yes Bank's potential.

The establishment of a wholly-owned subsidiary is crucial for SMBC's plan to increase its holding in Yes Bank to nearly 34%. Sources familiar with the matter suggest that once the RBI grants the license, SBI and other banks are likely to sell their remaining stake, approximately 14%, in accordance with the roadmap discussed with the RBI by Yes Bank and SMBC.

SMBC currently operates four branches in India, including one at the International Financial Services Centre (IFSC) in Gift City, Gujarat. Transitioning to a full-fledged subsidiary will provide SMBC with greater operational flexibility and facilitate the acquisition of a majority stake in Yes Bank.

The RBI has previously allowed foreign banks to establish wholly-owned subsidiaries in India. In 2020, DBS Bank, a Singapore-based financial services group, received a license to set up a wholly-owned subsidiary after agreeing to acquire the troubled Lakshmi Vilas Bank under a scheme approved by the government. This precedent suggests that the RBI is open to foreign banks playing a more significant role in the Indian banking sector, provided they meet the regulatory requirements and demonstrate a commitment to the Indian market.

The potential merger of Yes Bank with SMFG India Credit, formerly known as Fullerton India Credit, is also being considered, subject to RBI approval. SMBC acquired Fullerton India Credit, a non-bank finance company, in 2021 and renamed it SMFG India Credit.

Fitch Ratings, in a note released on Tuesday May 27, 2025, stated that the proposed 20% stake sale in Yes Bank to SMBC could unlock a new wave of foreign investment in Indian lenders, if a potential Reserve Bank of India (RBI) approval sets a precedent. The ₹13,482 crore deal, the largest cross-border investment in the Indian banking sector, comes five years after Yes Bank was rescued by a consortium of Indian banks led by State Bank of India (SBI). A successful transaction with SMBC would allow a partial exit for SBI and other banks involved in that bailout. The rating agency noted that India's foreign investment norms cap voting rights for investors in banks at 26%, and investments by financial institutions in Indian banks at 15%, which have deterred such stake sales.