Japan’s Sumitomo Mitsui Banking Corporation (SMBC) is set to receive ‘in-principle’ approval from the Reserve Bank of India (RBI) for setting up a wholly-owned subsidiary (WOS) in India.
SMBC is currently carrying on banking business in India in branch mode through its four branches located in New Delhi, Mumbai, Chennai and Bengaluru. The ‘in-principle’ approval has been granted to the bank for setting up a WOS through conversion of its existing branches in India.
“The RBI would consider granting a licence for commencement of banking business in WOS mode under Section 22 (1) of the Banking Regulation Act, 1949 to SMBC on being satisfied that the bank has complied with the requisite conditions laid down by RBI as part of ‘in-principle’ approval,” the RBI said in a statement on Wednesday.
Having a wholly-owned subsidiary in India means SMBC will have to create a separate legal entity with its own capital base and local board of directors. It will have to make clear delineation between the assets and liabilities of its India subsidiary with that of its foreign parent, with ring fenced capital and assets within the host country.
Local incorporation provides effective control to the local regulator – the RBI. As per Indian regulations, a wholly-owned subsidiary can be permitted, subject to regulatory approvals and such conditions as may be prescribed, to enter into mergers and acquisition transactions with any private sector bank in India subject to the overall foreign investment limit of 74%.
Last year, SMBC acquired 24.21% in Yes Bank, thus becoming the largest shareholder in the Mumbai-based bank.
Sumitomo Mitsui Banking Corporation or a part of the Sumitomo Mitsui Financial Group (SMFG) is the second largest bank in Japan with $1.72 trillion in total assets held across its operations in 39 countries, almost half of them in Asia-Pacific region.
India allows up to 74% foreign direct investment in private sector banks, while the limit is 20% in public sector banks.