Subsidiarisation may not be mandatory for foreign banks

Centra bank had proposed to incentivise existing foreign banks to convert into wholly-owned subsidiaries of their parent banks

The Reserve Bank of India (RBI) on Tuesday said it might not be mandatory for existing foreign banks in the country to convert themselves into subsidiaries of their parent banks .

The central bank had released a discussion paper on foreign banks’ presence in India in January, 2011 and had proposed to incentivise the existing foreign banks to convert into wholly-owned subsidiaries (WOS) of their parent banks. Currently, foreign banks are present in India in the form of branches or representative offices.

“While deciding the approach towards conversion of existing foreign bank branches, India’s commitments to WTO (World Trade Organisation) will have to be kept in mind. It may not, therefore, be possible to mandate conversion of existing branches into subsidiaries,” RBI said in a statement.

According to its commitments to WTO, India has to allow 12 new foreign bank branches in a year.

In July 2013, Business Standard had exclusively reported that the subsidiary route is likely to be optional for foreign banks in India. The report had also mentioned that foreign banks that are considered “systemically important” would probably set up subsidiaries to expand their branch network in India.

“The regulatory expectation would be that those foreign banks, which meet the conditions and thresholds mandated for subsidiary presence for new entrants or which become systemically important by virtue of their balance sheet size, would voluntarily opt for converting their branches into WOS,” RBI said.

For new foreign banks, however, the WOS form of presence will be mandatory under certain conditions. The other new entrants may opt for a branch mode subject to an obligation to mandatorily convert to WOS on reaching a certain size.

In India, there were 43 foreign banks operating through a network of 333 branches as of March, 2013. Also, 47 foreign banks have presence in India in the form of representative offices.