Subsidiary route for foreign banks: RBI
The Reserve Bank of India (RBI) in a discussion paper presented, on Friday, on its website said it prefers allowing foreign banks entry in the country through subsidiary route than the branch model, after taking lessons from the recent global financial crisis.
RBI made a categorical assertion that the advantages in wholly owned subsidiary far outweighs the downside risks vis-a-vis branches because branches are not separate legal entities in India. Whereas subsidiaries are concerned they are locally incorporated separate legal entity with its own capital base and board of directors.
Till date no foreign bank has approached RBI for setting up a subsidiary probably due to lack of incentives, the apex bank said. Hence, RBI added, there may be a need to incentivise that model. Also, from a financial stability perspective, RBI views there would be a need to mandate the subsidiary form of presence at the entry level. Minimum capital requirements for the entry-level wholly owned subsidiaries of foreign banks may be in line with new private sector banks. It also dwelt on various factors for setting up foreing bank presence in the country such as ownership pattern and financial soundness and rating.
