FirstRand Bank mulls taking the subsidiary route in India

South Africa’s FirstRand Bank might emerge as the maiden foreign lender to adopt the wholly-owned subsidiary route, following the Reserve Bank of India (RBI) unveiling the final norms on the issue earlier this month.

Sources said the Indian arm of the lender would start discussions with its South Africa-based parent to secure the necessary approvals in this regard. After the parent’s board approves the proposal, the Indian arm will submit an application to RBI.

Since South Africa offers liberal bank branch access to foreign lenders, FirstRand Bank is likely to gain from the reciprocity clause in the wholly-owned subsidiary norms. Branches of banks from the US and several European nations may not be given “near-national treatment” even if those convert themselves into subsidiaries.

FIRST OF ITS KIND

• FirstRand Bank may emerge as the first foreign lender to adopt the wholly-owned subsidiary route
• The Indian arm of the lender would start discussions with its South Africa-based parent to secure the necessary approvals in this regard
• FirstRand Bank is likely to gain from the reciprocity clause in the wholly-owned subsidiary norms
• Currently, RBI follows a restrictive branch licensing policy — every year, it gives only about 12 branch licences to foreign banks

RBI had promised foreign lenders converting their branches into subsidiaries would get “near-national treatment”, as far as expanding branch presence was concerned. Currently, RBI follows a restrictive branch licensing policy — every year, it gives only about 12 branch licences to all foreign banks combined. Though foreign banks have been promised “near-national treatment”, they will have to fulfil stiff priority sector and financial inclusion obligations.

RBI has mandated capital requirement of at least Rs 500 crore (about $80 million) for banks to set up wholly-owned subsidiaries.

The final guidelines on the wholly-owned subsidiary route for foreign banks are based on the two cardinal principles of reciprocity and single mode of operation.

FirstRand Bank, South Africa’s second-largest lender in terms of market capitalisation, commenced retail and commercial banking operations in India in April last year. The bank had entered India in 2008 by setting up a representative office. In 2009, it received a banking licence from RBI. It has about $175 million of assets in India, with a capital base of around $75 million.

Currently, FirstRand Bank’s branch here is its sole one in India. In its current from (as a branch), the lender focuses on trade finance, investment banking, fixed income, currency and commodity products, as well as debt capital markets and other structured products. The bank is present in various African countries, including Nigeria, as well as in the UK, Dubai, Australia and China.

 

In the present from, that is, as a branch, the lender focuses on trade finance, investment banking, fixed income, currency and commodity products as well as debt capital markets and other structured products.