Sumitomo Mitsui Banking Corporation (SMBC), one of Japan’s top financial institutions, is preparing a strategic transition in India’s banking landscape. The banking major is reportedly planning to approach the Reserve Bank of India (RBI) to obtain a licence to operate a wholly owned subsidiary (WOS) in India. This major step is part of a larger plan to acquire a controlling stake in Mumbai-based Yes Bank.

The move could significantly alter the dynamics of private sector banking in India, especially in light of the strategic foreign interest in Indian banking assets. According to a report by the Economic Times, the application for a subsidiary model aligns with SMBC’s interest in facilitating a smoother acquisition and operational control over Yes Bank.

Why SMBC Needs a Subsidiary Licence

Currently, SMBC operates four branches in India. However, RBI regulations require foreign banks to set up a wholly owned subsidiary if they wish to make significant investments or acquire controlling stakes in domestic financial institutions.

SMBC’s plan to acquire a majority stake in Yes Bank, especially post the planned purchase of a 20% stake from State Bank of India (SBI) and other Indian banks, has made it imperative for the Japanese bank to make this transition.

The remaining 14% stake, which still lies with Indian institutional holders post the 2020 Yes Bank reconstruction scheme, is likely to be divested after SMBC receives approval from the central bank.

RBI's Verbal Assurance and Precedents

According to sources, the RBI has already given a verbal nod to SMBC, suggesting that the move to establish a subsidiary will be allowed. While formal approval is still pending, such a verbal assurance signals regulatory comfort and support towards strategic foreign investments in the Indian banking ecosystem.

There is also precedent for this type of move. In 2019, Singapore’s DBS Group received approval to shift to a wholly owned subsidiary model in India. More recently, Emirates NBD Bank PJSC, a front-runner for acquiring a stake in IDBI Bank, received in-principle approval from the RBI to establish a WOS in India.

These examples showcase the RBI’s growing openness to permitting large foreign banks to participate meaningfully in India’s banking system — provided they comply with local regulatory frameworks and capital adequacy norms.

The Yes Bank Deal: A Potential Game-Changer

On May 9, Yes Bank announced that SMBC would acquire a 20% stake for approximately Rs 13,480 crore. This transaction is aimed at reducing the holding of SBI and other Indian lenders who had stepped in during the crisis phase of 2020.

In addition to this stake purchase, SMBC is also expected to infuse fresh capital, amounting to an additional 6-7% stake in Yes Bank. This infusion could trigger an open offer under SEBI’s regulations, allowing SMBC to increase its holding up to 51%, effectively becoming the majority owner.

If realised, this would be the first time a major Japanese bank takes control of a large Indian private sector bank, potentially leading to changes in corporate governance, technology adoption, and international expansion strategies at Yes Bank.

Yes Bank Board Meeting on June 3

To facilitate this transformative transaction, Yes Bank has scheduled a crucial board meeting on June 3, 2025. The bank will consider a proposal for raising fresh capital through various instruments — including equity shares, debt securities, or other eligible financial mechanisms.

This planned capital raise is expected to support regulatory compliance, enhance capital buffers, and potentially pave the way for SMBC’s fresh investment.

The timing of the board meeting is critical, as it coincides with SMBC’s ongoing efforts to secure the required RBI approvals.

Market Reaction and Stock Performance

The news of SMBC’s potential controlling stake and associated capital infusion has already impacted Yes Bank’s share price positively. As of 11:30 am on the same day, the stock was trading at Rs 22.60, which marked a 5% increase from its previous close.

This uptick reflects market optimism around the prospects of a strategic transformation under a new foreign promoter with deep pockets and a global banking pedigree.

What This Means for India’s Banking Sector

If SMBC’s acquisition goes through, it will:

• Boost foreign participation in the Indian banking sector.

• Elevate Yes Bank’s financial position, offering it a global operating model and technical expertise.

• Lead to greater scrutiny and adherence to global best practices in governance and compliance.

The RBI’s comfort with permitting such strategic investments by foreign players also reflects growing confidence in the resilience and attractiveness of India’s financial sector.

Strategic Benefits for SMBC

From SMBC’s perspective, India presents:

• A high-growth emerging market with expanding retail and corporate banking needs.

• An opportunity to enter a diversified financial ecosystem with high digital adoption.

• Strategic access to one of the largest consumer markets in the world, offering significant lending and deposit mobilization potential.

By acquiring Yes Bank and establishing a local subsidiary, SMBC would gain a well-established distribution network, a large customer base, and the potential for synergies in trade finance, cross-border lending, and corporate banking.

Regulatory Landscape and Way Forward

Setting up a WOS in India requires meeting several RBI criteria:

• Maintaining a minimum capital requirement of ₹500 crore.

• Complying with priority sector lending norms.

• Adhering to local board governance and branch expansion policies.

With RBI already offering in-principle support, the transition is expected to move swiftly, especially with SBI and other stakeholders keen on exiting their emergency-era holdings in Yes Bank.

If SMBC secures final approval and completes the transaction, the event will likely go down as a landmark moment in India’s banking liberalisation story.

Conclusion

The upcoming months are poised to be pivotal for both SMBC and Yes Bank. With regulatory processes in motion, capital raising proposals under review, and market sentiment turning positive, all eyes are now on the June 3 board meeting and subsequent RBI action.

A successful acquisition would not only transform Yes Bank’s financial health and global stature, but also reaffirm India’s position as a lucrative investment destination for global banking giants.

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