Fitch: SMFG–YES Bank Deal May Open Floodgates For Foreign Investment

Sumitomo Mitsui Financial Group’s planned 20% stake acquisition in YES Bank may set the stage for more foreign investment in India’s banking sector, Fitch Ratings said on Tuesday. The Japanese bank is set to become YES Bank’s largest shareholder, with two board seats, marking the first major foreign bank acquisition in the country.

Fitch said the deal, which still needs regulatory approval, could serve as a precedent. “If the Reserve Bank of India approves this deal, it could encourage other foreign banks to consider similar transactions,” it noted.

The RBI currently caps voting rights for investors in banks at 26%, and limits financial institutions’ investment in Indian banks to 15%. These constraints have traditionally deterred large-scale foreign investment, Fitch said.

SMFG will acquire the 20% stake by picking up 13.19% from State Bank of India and 6.81% from other banks, according to filings earlier this month.

Fitch added that loosening of existing limits could attract global players eyeing India’s fast-growing banking landscape. Mid-sized Indian banks could benefit from both capital support and access to broader global networks, while foreign banks could scale up rapidly through such partnerships.

India’s appeal is backed by strong GDP growth, projected at over 6% in 2026–27, improving financial regulation, and diminishing asset quality concerns. However, governance remains a concern.

Fitch cited IndusInd Bank’s recent net loss of ₹22.36 billion in January–March, following accounting lapses and misclassifications, as an example of persistent oversight issues. The bank had reported a ₹23.47 billion profit a year earlier.

“Increased involvement of global banks could lift governance standards and align with RBI’s efforts to bolster the sector,” Fitch said.