Voting capital for foreign bank arms put at Rs 500 cr

RBI to issue subsidiary guidelines soon

Foreign banks keen to enter India through wholly-owned subsidiary (WoS) route will need to bring in Rs 500 crore as initial minimum paid-up voting equity capital or net worth, said the Reserve Bank of India in its second quarter monetary review 2013-14.

"While it will not be mandatory for existing foreign banks (set up before August 2010) to convert into WOSs, they will be incentivised to convert into WOSs by the attractiveness of the near-national treatment afforded to WOSs," RBI Governor Raghuram Rajan said in the Second Quarter Review of Monetary Policy 2013-14.  

Such WOSs would be treated on par with domestic banks, including in matters of opening branches. The RBI is working to nudge large foreign banks with 30 or more branches in India to get incorporated locally. These banks are open to the idea of local incorporation provided they get a level playing field with local banks and waivers on stamp duty.

Hence, RBI will come out with comprehensive guidelines on foreign banks to encourage them to convert into wholly owned subsidiaries (WOSs) and enjoy near nationalised treatment. It will be guided by the two cardinal principles of reciprocity and single mode of presence, the Rajan said.

Currently, it is finalising the scheme of subsidiarisation and will release its guidelines by the middle of next month. 

"It is proposed to issue the scheme by mid-November," said Rajan. RBI had released a discussion paper on foreign banks' presence in India in January, 2011. 

Presently, foreign banks have a presence in India in the form of branches or representative offices. Forty-three foreign banks currently operate in the country through a network of 333 branches as of March 2013. 

Also, 47 foreign lenders have a presence in the country in the form of representative offices. As per its commitments to World Trade Organisation (WTO), India has to allow 12 new foreign bank branches in a year.  

In August 2013, the RBI had stated that it expects foreign banks, which become systemically important by virtue of their balance-sheet sizes, to voluntarily opt for converting their branches into wholly-owned subsidiaries. The central bank had also indicated that subsidiarisation will be made mandatory new foreign banks under certain conditions.