SMFG accelerates India expansion by boosting lending, $5 bn buying blitz

Japan's second-largest lender has made investments to expand in financial services from retail to wholesale banking in India, such as a landmark deal that made it the biggest shareholder of Yes Bank

By Taiga Uranaka, Siddhi Nayak and Hideki Suzuki

 

Sumitomo Mitsui Financial Group Inc. is set to quicken its push into India by boosting lending and adding staff, after deploying almost $5 billion to gain ground in one of the world’s fastest growing major economies.

 

Japan’s second-largest lender has made investments to expand in financial services from retail to wholesale banking in the country, such as a recent landmark deal that made it the biggest shareholder of Yes Bank Ltd. 

 

“The key is to continue to support these platforms and scale them up,” Rajeev Kannan, head of its India division, said in an interview. 

 

 

Global firms have piled into India’s financial sector as they hunt for growth in the world’s most populous nation that’s hungry for credit to support its growth ambitions, though the verdict is still out on whether this is a lucrative strategy. For Sumitomo Mitsui, getting into India’s commercial banking is “the last missing piece” for its so-called multi-franchise strategy. The bank aims to build a full suite of financial services in four countries in Asia, which also include Vietnam, the Philippines and Indonesia.

 

Over the past four years, Sumitomo Mitsui has spent roughly $5 billion snapping up stakes in firms. The investment spree is likely to slow going forward as it focuses on integrating the acquisitions, according to Kannan, who’s spent almost three decades at the firm’s banking unit and was previously its co-head of Asia-Pacific. 

 

In 2021, it bought a majority stake in shadow lender Fullerton India Credit Co. for about $2 billion to tap demand for personal and small business loans, and last year, bought the remaining stake in the company, now renamed SMFG India Credit Co. This year, the Japanese bank purchased a 20% stake in Yes Bank and has gotten regulatory approval to raise its holding to 24.99%, just below the level where it has to make an offer for more shares.

 

On further increasing the Yes Bank stake, Kannan said the firm hasn’t had “any of those kind of discussions at this point of time.” 

 

Another firm with whom more could be done is US investment bank Jefferies Financial Group Inc., which is active in India dealmaking and Sumitomo Mitsui is raising its stake in, Kannan said.  

 

Elsewhere, the Japanese bank is fighting to stay among the top tier of lenders in the country, where it faces fierce competition from HSBC Holdings Plc to First Abu Dhabi Bank PJSC. It’s currently ranked seventh in foreign currency loans to India borrowers, from fourth last year, according to data compiled by Bloomberg.  

 

Kannan highlighted infrastructure financing, acquisition and leverage financing to private equity firms as some of the growth areas. He is unfazed by the crowded field, such as from Middle Eastern rivals pushing more into the market, saying the market is getting bigger to provide capital India needs. 

 

More people will be added to support the growth, according to Kannan. Yes Bank and SMFG India Credit employ more than 20,000 people each and are looking to hire. Sumitomo Mitsui itself has over 400 staff across five branches where business is growing more than 20%, he said. They include one at Gujarat International Finance ­Tec-­City, India’s finance hub also known as GIFT City, and the newest one at Bengaluru. 

 

At the GIFT City branch, which opened last year, the book size has expanded “quite materially” and the bank may consider getting into areas such as sales and trading, he said.  

 

Another major new initiative for the bank is setting up a facility in Chennai in September to support its systems development and operations, adding to similar spaces in Malaysia and Dublin. The facility, also referred to as a global capability center, has space for 600 people and makes Sumitomo Mitsui the latest among global banks to latch on to such hubs in India.

 

“As we think about scale, efficiency, and tapping into available talent and human capital, we need as a group to build a presence in India,” where many global and its Japanese peers have seen success, Kannan said.