The Reserve Bank of India (RBI) may not issue a banking licence to the Union Bank of Switzerland (UBS) to commence operations in the country. | |
| According to a source close to the development, the RBI is averse to issuing a banking licence to UBS following the role of group firm, UBS Securities Asia Ltd, in the stock market crash of May 17 last year. A final view on the matter was, however, yet to be taken, the source added. |
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| UBS was reported to have applied for a banking licence a few months back. |
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| UBS Securities was barred from issuing offshore derivative instruments in the Indian securities market for a year, according to a order of the Securities Exchange Board of India issued on May 17. |
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| The order stated said that UBS Securities sold shares worth Rs 1.8 billion on behalf of hedge funds in the cash market, thus pulling down prices. |
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| Sources added that the RBI was critical of the role of participatory notes (PNs) as the origin of investors could not be ascertained, thus violating the "Know Your Customer" norms. |
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| Moreover, there was no way of monitoring these funds which are highly speculative and short-term debt creating investments. |
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| The RBI governor has been supportive of foreign inflows but in the form of direct investments giving rise to productive growth. |
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| Thus, the RBI may wait for further systemic stability before allowing the bank to start off its operations, the source said. |
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| Besides being strictly vigilant of the role of PNs, the RBI has imposed a cap on mutual funds interested in investing in overseas instruments. |
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| The central bank has also expressed concerns about offshore funds floated by mutual funds. |
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| The worry was primarily on account of mutual funds getting funds through participatory notes where the identity of the investor could not be revealed. |
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