Japanese mega banks are increasingly eying India’s banking and financial sector: What’s behind this interest?

Among the most significant Japanese deals in India was Sumitomo Mitsui Banking Corporation’s (SMBC) investment in Yes Bank. This transaction was the largest cross-border investment in India’s banking sector and gave SMBC a stronger foothold in both retail and corporate banking in the country.

SMBC, part of Sumitomo Mitsui Financial Group (SMFG), acquired a 20% stake in Yes Bank for about Rs 13,483 crore (around $1.6 billion). 

The investment, approved by the Competition Commission of India and the Reserve Bank of India, allowed SMBC to raise its holding to 24.99% without being classified as a promoter.

Japanese exposure is extending into the non-banking finance sector too. 

Mitsubishi UFJ Financial Group (MUFG), the largest bank in Japan with assets of $4 trillion, is reported to be in advanced talks to acquire around a 20% stake in Shriram Finance, one of India’s largest non-bank financial companies, in a transaction estimated to be worth over $3 billion.

Although Shriram Finance is not a bank, it plays a key role in retail and vehicle financing.

The most recent deal was the one between Avendus and Mizuho Financial Group’s subsidiary Mizuho Securities. The deal significantly expands Mizuho’s presence in India’s investment banking and advisory space.

Mizuho Bank maintains five branches across major Indian cities. The bank primarily engages in corporate banking and treasury operations in India, serving Indian and multinational companies rather than retail customers. It also has a branch in GIFT City (Gujarat International Finance Tec-City) operating under the International Financial Services Centre regime.

Then there are smaller, but strategic, investments that point to deepening engagement.

The SMBC Asia Rising Fund acquired a 4.99% stake in Shivalik Small Finance Bank in August. Other Japanese financial institutions have expanded their presence through NBFC acquisitions, partnerships, and investments in digital lending platforms such as SMFG India Credit and DMI Finance. The growing presence of foreign banks in India also reflects a shift in approach by the Reserve Bank of India, which was earlier cautious about approving foreign takeovers of Indian banks and NBFCs.

Behind Japanese banks’ interest in India

For over two decades, Japan has faced near-zero real economic growth — averaging around 0.4% between 1999-2000 and 2023-24 — along with persistently low inflation. One of the major challenges for the economy has been an unfavourable demographic shift. “The rapid ageing of the population, coupled with a shrinking workforce and limited immigration, has significantly restricted labour supply and reduced the economy’s productive capacity. This decline in labour input and stagnant total factor productivity have weakened Japan’s manufacturing competitiveness, limiting the drivers of medium-term growth,” CareEdge Ratings said in a report.

The 7.3% growth forecast by the RBI for 2025-26, up from 6.8% earlier, supported by strong agricultural prospects, the continued impact of GST rate cuts, low inflation and healthy balance sheets of companies and banks are expected to attract more such foreign banks.

What’s in it for India?

The growing Japanese presence is expected to bring long-term capital, global best practices and stronger risk management frameworks to Indian financial institutions, while also offering Japanese banks access to one of the world’s fastest-growing financial markets.

On the other hand, only two Indian banks have a presence in Japan. State Bank of India (SBI) operates two branches—one in Tokyo and another in Osaka—primarily serving corporate clients, handling trade finance, forex, and remittance services, and supporting business ties between India and Japan. Bank of India also maintains two branches in Tokyo and Osaka. BOI’s presence dates back to the early 1950s and focuses on business banking services for Indian and local corporations.

The structure of the investments

Regulatory limits on foreign ownership — typically capped at 20 to 24.99% in banks — have shaped the structure of these investments, which are largely minority stakes or strategic partnerships rather than outright takeovers.

The RBI allows a foreign bank to hold up to 20% in an Indian private sector bank under the automatic route, and up to 24.99% with the RBI approval without being classified as a promoter. Any stake beyond 25% is treated as promoter shareholding and is subject to much stricter scrutiny, fit-and-proper norms and licensing conditions, even though the overall foreign investment cap in private banks is 74% under India’s FDI policy.