Subsidiary scheme for foreign banks in 2 weeks

The RBI plans to announce the scheme regarding the mode of presence of foreign banks in India within the next two weeks.

The RBI had floated a discussion paper more than two years ago on the subject. Based on the developments surrounding the financial crisis of 2008, it favoured the presence of foreign banks through a subsidiary as against the current system of operating in India through their branches.

In its monetary policy review today, the RBI said that after taking into account the feedback received from stakeholders, a scheme of subsidiarisation of foreign banks in India, guided by the two cardinal principles of reciprocity and single mode of presence, is being finalised.

The wholly owned subsidiaries would be given near-national treatment, including in the opening of branches.

It will not be mandatory for foreign banks set up before August 2010 to convert into local entities but the central bank hopes that the near-national treatment will incentivise the banks to switch to the new model.

The initial minimum paid-up voting equity capital or net worth for a wholly owned subsidiary shall be Rs 500 crore. It is proposed to issue the scheme by mid-November.