Asia CEO says he is delighted with the freedom given to foreign banks.
Standard Chartered Bank is set to become the first foreign bank to take the subsidiary route in India. The bank has 94 branches in India – the highest among foreign banks. Citibank, which comes next, has around 60 branches.
Stanchart’s Asia CEO Jaspal Bindra, who was in Davos last week for the World Economic Forum meeting, said the “bank wants to be even more relevant to the Indian market and to its clients. The subsidiary route for us is more or less certain, barring unforeseen circumstances.”
Bindra said there were still some issues, but he was confident that the Reserve Bank of India (RBI) would sort these out after getting feedback from stakeholders to its discussion paper.
RBI had come out with a discussion paper last month in which it proposed to make the subsidiary route mandatory for new foreign banks and “preferable” for the existing ones. The central bank listed out some incentives like more leeway in opening branches, but was silent on allowing foreign banks to take over banks in India.
Bindra, who is the only Asian director on the five-member executive board of the UK-headquartered bank, said the discussion paper gave banks a sense of clear direction on RBI’s thinking. “I am delighted that the thinking is around giving foreign banks more freedom, subject to their showing commitment to the market,” he said.
While Asia contributes over two-thirds of the bank’s profit, India alone accounts for 25 per cent of net profit, 14 per cent of revenue and about a quarter of the employee strength.
Though Bindra did not comment on the issue, several foreign banks had earlier expressed concerns about their tax liability if they choose to convert themselves into wholly owned subsidiaries. Many tax experts had said that the recurring tax liability of foreign banks would increase in a subsidiary arrangement.
However, this disadvantage will be temporary as the proposed Direct Tax Code has said that the tax treatment of foreign firms’ branches will be on a par with that of subsidiaries.
Stanchart has been the most aggressive among foreign banks in India. In the past, it acquired ANZ Grindlay’s India business, the American Express banking business, SMBC (Sumitomo Mitsui Banking Corporation) and UTI Securities. Stanchart was also the first foreign company to launch IDRs (India depository receipts).
In its discussion paper, RBI had said in the post-crisis period, a majority of regulators were stipulating local incorporation requirements to protect retail depositors and to limit the impact of operations of systemically important banks. A clear demarcation of assets and liabilities between branches of subsidiaries and the head offices was possible, it said.
It also becomes easier to define laws of jurisdiction and, in general, enhance the capabilities of the domestic regulators.
One important lesson from the crisis is that a foreign bank’s support to either its branches or subsidiaries need not be automatic.
Given the perceived reluctance of foreign banks to incorporate subsidiaries, certain incentives could be offered without relaxing the entry-level requirements, said the discussion paper.