Foreign banks may look forward to a less restrictive branch expansion policy and could be allowed to raise rupee resources.
According to a Reserve Bank of India discussion paper, foreign banks having branch mode of presence in India and those intending to set up shop are to be offered these incentives to encourage them to adopt the wholly owned subsidiary (WOS) mode of presence in the country.
To create an environment for encouraging foreign banks to set up WOS, a less restrictive branch expansion policy, though not on a par with domestic banks, may be envisaged. This would mean that the WOS would be enabled to open branches in Tier-3 to- 6 centres except at a few locations considered sensitive due to security considerations, the paper on the presence of foreign banks in India said. The application of a WOS for setting up branches in Tier-1 and Tier-2 centres would also be dealt with in a manner and on criteria similar to those of domestic banks.
Capital requirements
The minimum capital requirements for WOS on entry could be in line with those prescribed for the new private sector banks.
Pointing out that full national treatment for WOS of foreign banks could create risks from financial stability perspective if these banks come to dominate the domestic banking system, the paper said, it would neither be possible nor desirable to provide full national treatment to WOSs of foreign banks.
However, the WOS would be placed in a much better position than the foreign bank branches operating in India but less than that of domestic banks. This would provide very significant incentives for the WOS mode of presence of foreign banks in India.
The board of WOS of a foreign bank must include independent directors in order to make sure that the management acts in the best interest of the local institution.
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