RBI wants foreign banks to take the subsidiary route in India

The Reserve Bank of India (RBI) has proposed the setting up of wholly-owned subsidiaries of foreign banks in India or conversion of existing branches in the country to wholly owned subsidiaries (WOS) in order to clear regulatory hurdles.

In a discussion paper issued on Friday, the RBI has issued guidelines, which inter alia prescribe the eligibility criteria of the applicant foreign banks such as ownership pattern, financial soundness, supervisory rating and the international ranking for setting up such subsidiaries.

The subsidiaries should have a minimum capital of Rs300 crore, (Rs3 billion) and would need to ensure sound corporate governance.

These subsidiaries would be treated on par with the existing branches of foreign banks for branch expansion, with flexibility to go beyond the existing WTO commitments of 12 branches in a year and preference for branch expansion in under-banked areas.

The RBI, however, has indicated that it may also prescribe market access and national treatment limitation consistent with WTO as also other appropriate limitations to the operations of WOS, consistent with international practices and the country's requirements.

RBI said this has become imperative in the perspective of regulatory control in light of the recent global financial crisis has been exacerbated by the complex structures that are `too big to fail' (TBTF) and `too connected to fail' (TCTF).