The Reserve Bank of India said that it will outline a “scheme” by mid-November to encourage existing foreign banks to convert their Indian operations into wholly-owned subsidiaries (WoSs).
While it will not be mandatory for existing foreign banks in India like Citibank, DBS, Deutsche Bank, Standard Chartered, HSBC to convert their existing operations into subsidiaries, the RBI will come out with incentives to lure them into converting.
The RBI said foreign banks which follow the wholly-owned subsidiary model will be accorded near-national treatment, including in opening of bank branches.
Raghuram Rajan, Governor, RBI said during his post policy media interaction, “The intent is that foreign banks should have both the privileges (of branch expansion) as well the responsibilities (of priority sector lending) of Indian banks when they become WOSs.”
The central bank proposed that the initial minimum capital or net-worth of such banks should be at least Rs 500 crore.
Post the financial crisis a need was felt to ring-fence the domestic operations of foreign banks in India from vagaries of developments in their parent organisations in their respective home countries.
On why the WOS model be not made compulsory for all foreign banks, Rajan said, “For banks that have been in India for a long time, it would be a retrospective regulation because they came in according to some ground rules.”
In the new policy, he said, there will be sufficient safeguards to ensure that we do not become a foreign bank dominated economy.