For decades, China held a central place in the overseas expansion strategy of Japanese banks. Financial institutions followed Japanese manufacturers into the Chinese market, financing factories, supporting supply chains and facilitating trade. That model is now shifting. As Japanese companies reassess their China exposure amid slowing growth, rising costs and geopolitical uncertainties, banks are increasingly redirecting attention and capital toward India and Southeast Asia.
This is not merely a cyclical adjustment but part of a broader strategic realignment. Japanese regional banks are shrinking their footprint in China and looking at India and Singapore, while major financial groups are making some of their largest-ever investments in India's banking and financial services sector. The trend mirrors a larger transformation underway in Asian manufacturing and investment flows, with India emerging as a key beneficiary.
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Attention shifts from China to India
A Nikkei Asia report reveals how Japanese financial institutions are changing their Asia strategy. According to the report, Japanese local and regional banks are scaling down operations in China as their corporate clients confront mounting challenges in the Chinese market. Japanese manufacturers operating in China are facing higher labour costs, intensifying competition from local companies and slowing demand in key sectors.
The report notes that the branch network of Japanese local banks in China has declined by approximately 20 per cent over the past five years. While the report does not suggest a mass closure of banking operations, it points to a steady reduction in physical presence and a reallocation of resources away from China.
The shift is particularly visible among Japan's regional lenders. Chiba Bank and 77 Bank have established new operational hubs in Singapore, while Saikyo Bank is launching an Indonesian subsidiary. These moves reflect growing efforts to support Japanese companies investing across Southeast Asia rather than concentrating resources in China.
The Nikkei report links this banking pivot directly to changes occurring within Japanese industry. Japanese manufacturers, particularly in the automotive sector, are increasingly diversifying production away from China. The rapid rise of Chinese electric vehicle manufacturers has intensified competition for Japanese automakers, forcing many of them to reduce manufacturing capacity and investment in the country.
The challenges are also evident for big banks. According to the report, corporate lending by Japan's three megabanks -- Mitsubishi UFJ Financial Group, Sumitomo Mitsui Banking Corporation and Mizuho Financial Group -- has fallen sharply in China. Loan books at the three institutions have contracted by as much as 40 per cent over the past five years.
Notably, Japanese regional banks are not yet opening branches in India as they shut them down in China. These banks operate in India through representative offices or strategic partnerships. The shift of Japanese regional banks from China to Singapore can also impact India as these banks can serve Japanese clients in India from Singapore. Instead of a broad-based pivot, as in the case of big Japanese banks like MUFG pouring huge money into India, these regional banks have just begun to shift their attention to India.
The key trend is that Japanese banks are not necessarily abandoning China altogether. Rather, they are increasingly directing future growth capital, management attention and expansion efforts toward markets where their corporate clients see greater long-term opportunities.
Why India is becoming increasingly attractive
The growing interest in India is rooted in both opportunity and necessity. For Japanese companies, India has evolved from a promising emerging market into a strategic growth destination. The country's large domestic market, rising incomes, expanding middle class and accelerating industrialisation offer opportunities that are becoming increasingly difficult to find in mature economies.
India's manufacturing ambitions have further strengthened its appeal. Government initiatives aimed at boosting domestic production, combined with incentives for electronics, semiconductors, renewable energy and advanced manufacturing, have attracted global investors seeking alternatives to China-centric supply chains.
The semiconductor sector is particularly important. As countries and companies seek to diversify technology supply chains, India has emerged as a potential hub for semiconductor manufacturing, assembly and design. Japanese companies with expertise in chip materials, equipment and industrial technology see significant opportunities in this ecosystem. The rapid expansion of India's data centre industry is another attraction. Driven by digitalisation, artificial intelligence, cloud computing and rising internet usage, data centre investments have surged across major Indian cities. This has created financing opportunities for banks and financial institutions looking to participate in long-term infrastructure growth.
Beyond individual sectors, India's demographic profile presents a stark contrast to Japan. While Japan faces an ageing population and limited domestic credit growth, India continues to benefit from a young workforce, expanding consumer demand and increasing financial inclusion. For banks seeking sustained growth over the coming decades, these fundamentals are highly attractive.
The shift in sentiment is visible in comments made by Mizuho Bank Global CEO Masahiko Kato earlier this year. Speaking to ET, Kato said India had rapidly become the most promising destination for Japanese companies. "Japanese companies now view India as their most promising market," Kato said, noting that surveys conducted by the Japan Bank for International Cooperation have ranked India as the top overseas investment destination since 2022. He added that Japanese investment is set to reach 1.2 trillion yen in 2025. "Conversations in Tokyo increasingly focus on expanding in India," he told ET.
The growing banking presence in India is increasingly being viewed as part of a larger India-Japan economic corridor. Japanese banks are positioning themselves to finance trade, investment, mergers and acquisitions and infrastructure projects connecting the two economies. Instead of merely supporting Japanese companies entering India, banks are also seeking relationships with Indian corporates that are expanding globally.
This represents a significant evolution in strategy. Historically, overseas banking operations often focused primarily on servicing Japanese clients abroad. Today's approach is broader and more integrated, encompassing investment banking, capital markets, wealth management and domestic lending opportunities within India itself. The result is a deeper and more permanent financial engagement with the Indian economy.
Japan's mega banks deepen India presence
While Japanese regional banks have begun to shift attention towards India, the mega banks are already betting big. Japan's growing financial commitment to India comes from the country's three megabanks -- Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Banking Corporation (SMBC) and Mizuho Financial Group. Over the past two years, all three institutions have made major investments that give them with direct exposure to India's banking, financial services and capital markets sectors.
Among the most significant transactions was SMBC's acquisition of a 20 per cent stake in YES Bank in 2025 for approximately $1.6 billion. The deal made the Japanese lender the largest shareholder in the private sector bank and gave it a stronger platform to serve Japanese companies operating in India while gaining exposure to the country's expanding banking sector.
MUFG has pursued a broader strategy focused on India's fast-growing credit market. Its biggest move came through the acquisition of a 20 per cent stake in Shriram Finance in a transaction valued at around $4.45 billion. Shriram is one of India's largest non-banking financial companies with a strong presence in commercial vehicle financing and lending to small businesses. MUFG has also steadily expanded its investment in DMI Finance, increasing its stake to gain access to India's rapidly growing consumer and MSME lending segments.
Mizuho has chosen a different route. In December 2025, its securities arm acquired a majority stake in investment bank Avendus, marking one of the most significant foreign acquisitions in India's financial services sector in recent years. The transaction provides Mizuho with access to India's technology, startup and digital economy ecosystem, while also strengthening its capabilities in investment banking, mergers and acquisitions advisory and capital markets.
The logic behind these investments extends beyond individual deals. Japanese banks are increasingly positioning themselves to finance growing economic linkages between India and Japan. They are seeking opportunities not only in traditional corporate banking but also in retail lending, non-banking finance, investment banking, wealth management and capital markets.
Earlier this year, Mizuho Bank Global CEO Masahiko Kato told ET about the bank's ambition to build an India-Japan corridor that supports Japanese companies investing in India and Indian companies expanding internationally.
The investments by MUFG, SMBC and Mizuho show how Japanese financial institutions are moving beyond simply servicing Japanese corporates overseas. They are embedding themselves directly into India's financial system, positioning for long-term participation in one of the world's fastest-growing major economies.
A quiet structural realignment
Japanese banks' retreat from China and attention to India indicates more than short-term adjustments. These banks are responding to the same forces reshaping corporate investment across Asia. China's economic slowdown, rising costs and increasingly competitive domestic industries have reduced the growth opportunities available to foreign companies. At the same time, India offers scale, demographics, industrial expansion and rising demand for financial services. The decline in Japanese regional bank branches in China, the contraction of megabank loan books and the series of billion-dollar investments in Indian financial institutions all point in the same direction. For decades, Japanese banks followed their clients into China. With the China+1 trend picking up, they are now looking to follow them into India. The pivot from China to India may have just begun and not yet gathered pace but it's a powerful signal.
(With inputs from ANI)
