RBI Grants In-Principle Approval to Japan’s SMBC for Wholly-Owned Subsidiary in India
Key Takeaway: The Reserve Bank of India (RBI) has given in-principle approval to Japan’s Sumitomo Mitsui Banking Corporation (SMBC) to establish a wholly-owned subsidiary (WOS) in India, marking the second such approval for a Japanese bank.
What This Approval Means
The RBI’s approval, granted under its 2013 scheme for foreign banks, allows SMBC to proceed with plans to set up a local subsidiary. This nod is valid for one year. SMBC follows MUFG Bank Ltd, which received similar approval in 2020.
Understanding the WOS Route for Foreign Banks
Foreign banks can enter India via two routes: branches or wholly-owned subsidiaries. The WOS model is mandated for banks with complex structures, inadequate disclosure norms in their home country, or from jurisdictions where home country deposits get preferential claim during winding-up proceedings.
The capital requirements are significant for both models:
- Branch Mode: Requires a minimum assigned capital of Rs 5 billion.
- WOS Mode: Requires a minimum paid-up equity capital of Rs 5 billion.
Pathway and Regulatory Status
The scheme also allows foreign banks to convert their existing Indian branches into a WOS. Once converted, the subsidiary is treated as a domestic bank under the Banking Regulation Act, 1949, providing it operational parity with local banks.
SMBC is a core subsidiary of the Sumitomo Mitsui Financial Group (SMFG), one of Japan’s largest financial institutions. This move signals continued foreign banking interest in the Indian market.
