Sunday, December 15, 2013

Foreign Banks free to enter India

The Reserve Bank of India (RBI) has released guidelines stating that wholly owned Subsidiaries
(WOSes) of foreign banks could acquire domestic private-sector banks, as well as set up branches
anywhere in the country. The Central Bank also said that these WOSes might be permitted to enter into merger & acquisition (M&A) transactions with any private bank in India, subject to the overall foreign investment limit of 74 per cent. The following are the main highlights of the guidelines: -

  • The Subsidization is not mandatory but foreign banks with complex structures and concentrated shareholding will have to create wholly-owned subsidiaries (WOSes)
  • Foreign banks opting for branch presence must  convert into WOSes when it becomes systemically important.
  • Foreign banks creating subsidiaries to be permitted to acquire local banks
  • Restriction is to be placed on entry of new WOSes and capital infusion when capital & reserves of WOSes and foreign bank branches exceed 20% of the banking system’s capital & reserves
  • Rs 500 crore prescribed as initial minimum paid-up voting equity capital for a WOS
  • The Priority Sector Lending requirement for WOSes to be on a par with Indian banks —40%
  • Corporate governance norms for WOSes to be stringent, including two-thirds of directors to be non-executive


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