Foreign banks with complex structures can operate via WOS only: RBI
Mumbai: In a bid to regulate and avoid 2008- type crisis, RBI on Wednesday said foreign banks with complex structures and which do not provide adequate disclosure would have to operate in India only through wholly-owned subsidiaries (WOS).
However, it permitted WOS of overseas banks to acquire private sector banks.
The framework for setting up of WOS by foreign banks in India, released by the Reserve Bank tonight, also allowed foreign banks' subsidiaries to list on local stock exchanges.
The initial minimum paid-up equity capital or net worth for a WOS would be Rs 500 crore.
"Banks with complex structures, banks which do not provide adequate disclosure in their home jurisdiction, banks which are not widely held, banks from jurisdictions having legislation giving a preferential claim to depositors of home country in a winding up proceedings, etc, would be mandated entry into India only in the WOS mode," it said.
Foreign banks operating in India before August 2010 have the option to continue their operations in branch model.
The RBI further said foreign bank subsidiary will not be allowed to hold more than 74 per cent, the sectoral cap for overall foreign investment, in private banks they may acquire.
"As a locally incorporated bank, the WOSs will be given near national treatment which will enable them to open branches anywhere in the country at par with Indian banks," the RBI guidelines said.
There were 43 foreign banks in India with a network of 333 branches as of March 2013. At present, foreign banks have presence in India only through branches.
The guidelines come against the backdrop of the 2008 global financial crisis, which the RBI said has shown that growing complexity and inter-connectedness of financial institutions have compromised the ability of home and host authorities to cope with the failure of big banks.
"The lessons learn during the crisis lean in favour of domestic incorporation of foreign banks," it said.