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Business deals

SMBC buys stake in Indian lender with eye to microfinance

Japanese bank needs to boost credit for small businesses and farmers

SMBC's deal with Northern Arc will help the Japanese megabank extend loans to more farmers in India.   © Reuters

MUMBAI -- Japan's Sumitomo Mitsui Banking Corp. has acquired a 5.4% stake in Indian nonbank lender Northern Arc Capital, as part of an effort to reach more underserved borrowers in Asia's third-largest economy.

SMBC becomes Northern Arc's seventh-biggest shareholder with the deal, announced Monday. The purchase price was not disclosed.

The partnership with Northern Arc helps SMBC increase lending in the country, where banks face regulatory requirements that a certain percentage of outstanding loans go to small and midsize businesses as well as designated industries such as agriculture. Failure to attain those thresholds each quarter results in penalties.

Northern Arc invests in and provides financing for companies that lend to farmers and smaller businesses, giving it strength in risk management of loans to such clients.

The Sumitomo Mitsui Financial Group unit, one of Japan's three largest banks, plans to open its third location in India in 2020.

Elsewhere in Asia, SMBC was recently outbid by Thailand's Bangkok Bank to acquire Indonesian lender Bank Permata.

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