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