Four foreign banks apply to set up subsidiaries in India

RBI says foreign banks will also be permitted to acquire local private banks

The Reserve Bank of India (RBI) has received applications from four foreign banks to set up wholly-owned subsidiaries in India.

“Four have already applied and we are processing those,” RBI Deputy Governor R Gandhi said, adding several other foreign banks were also considering such a move.

Singapore-based DBS Bank and SBM Bank (Mauritius) have already sought the regulator’s permission to convert their branches into subsidiaries.

Following the regulator releasing final guidelines for foreign lenders to convert their India branches into subsidiaries, it has taken more than a year and a half to find takers. RBI had said if foreign banks took this route, the regulator would treat them on a par with Indian banks. They would be given capital gains tax and stamp duty benefits and allowed to acquire local private banks.

However, changes in priority sector lending (PSL) norms that would follow such a move were a bone of contention. Before applying to RBI, some foreign lenders had urged that these norms be relaxed. The central bank said as was the case with their Indian counterparts, foreign banks would have to offer 40 per cent of their loans to priority sectors. Of this, 18 per cent have to be offered to the farm sector.

Currently, the cut-off for foreign lenders in the PSL segment is 32 per cent (for foreign banks with more than 20 branches, it is 40 per cent). But they would have to adhere to the 40 per cent norm within five years of setting up wholly-owned subsidiaries.

RBI had said foreign banks that entered India after August 2010 would have to mandatorily convert their branches into wholly-owned subsidiaries. On-tap licences for niche banks, Gandhi said RBI would soon come out with guidelines on this. “On tap would mean there is no closing date. When we came out (with application deadlines for niche banks), we had given a closing date. But here, there is no closing date. At their convenience, they can come to us and we will process and give. After this differentiated bank licensing is over, our next target is to bring better regulation for on-tap.”

He added RBI would release the names of banks it deemed “systemically important” within two-three days. In July last year, the central bank had said four to six domestic lenders would be labelled “systemically important”, the equivalent of ‘too-big-to-fail’ banks in other countries.