Foreign Banks Subsidiaries

Foreign Banks Subsidiaries Wholly Owned Subsidiaries Private Sector Banks

RBI permitted foreign banks subsidiaries to acquire domestic private sector banks

The Reserve Bank of India (RBI) on 6 November 2013 permitted the Wholly Owned Subsidiaries (WOS) of the foreign banks to acquire the domestic private sector banks. RBI also permitted the banks to set up branches anywhere in the country. 

As per the permission given by RBI, the foreign banks will have to seek permission of RBI to open branches in certain sensitive locations.

The foreign bank subsidiaries have also been allowed to list on the local stock exchanges. Although, they will not be allowed to hold more than 74 percent in the private banks they may acquire. 

The order of the RBI also stated that the foreign banks that commenced banking business in India before August 2010 will be given an opportunity to convert into a wholly owned subsidiary.

Currently, foreign banks as a group are entitled to open 12 branches in India every year, according to WTO commitments. India has usually allowed a higher number.

The new dispensation will probably help foreign bank branches proliferate — provided, of course, their countries have reciprocal arrangements for Indian banks in their territories.

Old foreign banks that set up shop prior to August 2010 (such as Citibank, HSBC, Standard Chartered and DBS) will have the option to continue operating as a branch of their foreign parent, but they will be “incentivised” to convert into WoS.

The initial minimum capital for a WoS will be Rs 500 crore, which foreign banks would need to bring upfront; this applies to even existing foreign banks which wish to convert.

Further, the RBI said that the WoS will be required to meet Basel-III requirements (9 per cent Tier-I capital) right from Day One.

For the first three years, the WoS will have to maintain Tier-I capital at 10 per cent.

Branch Operations

On opening of new branches, the RBI has sought to bring the WOSs on a par with domestic banks.

They will be allowed to open branches in Tier 1- centres without taking prior permission from the RBI provided at least 25 per cent of their branches are opened in un-banked rural centres (Tier 5 and Tier 6).

Board Of Director

The RBI also mandated that at least a third of the directors should be independent of the management of the subsidiary in India, its parent or associates.

It also wants at least a third of the directors to be Indian nationals resident in India.