December 2016 \ Business & Investment \ Special Column on law & diplomacy
Opening Indian Branch Offices of Foreign Banks

At present, foreign banks have presence in India only through branches.

By Mr K K Anand

i.    Economic and political relations with the country of incorporation of the parent bank,

ii.    Reciprocity with home country of the parent bank,

iii.    Financial soundness,

iv.    Ownership pattern,

v.    International and home country ranking of the parent bank by a reputed agency,

vi.    Home country/parent bank rating by a rating agency of international repute such as Moody Investors Service, Standard  & Poor’s and Fitch Ratings,

vii.    International presence of the bank,

viii.    Adequate risk management and internal control systems.

These criteria represent the minimum that an applicant will need to meet for applying to RBI for granting a licence under Section 22 of the Banking Regulation Act, 1949 (to set up a bank as a WOS of the parent bank) and is not an exhaustive list. The final decision to grant licence will be that of RBI. 

4.    Conditions requiring presence as WOS only

Foreign banks which have commenced banking business in India after August 2010 or foreign banks which are not at present carrying on banking business in India but wish to do so in the future shall carry on banking business in India only through a wholly owned subsidiary, if any of the matters as described hereunder are applicable:

A.    i. Banks incorporated in a jurisdiction having legislation giving a preferential claim to deposits of home country in a winding up proceedings;

    ii. Banks that do not have adequate disclosure requirements in their home jurisdiction;

    iii. Banks with complex structures;

    iv. Banks which are not widely held;

    v. Reserve Bank of India is not satisfied with the adequacy of supervisory arrangements (including disclosure arrangements) and market discipline in the country of their incorporation; and

    vi. For any other reason that the Reserve Bank of India considers necessary for subsidiary form of presence of the bank; or

B.    If a foreign bank, which has set up its presence in India through branch mode after August 2010, is considered by RBI as being systemically important by virtue of the size of its business. 

5.    National treatment

a)    Under the FDI policy as set out in the Government of India’s Department of Industrial Policy and Promotion WOSs of the foreign banks, even though locally incorporated, being foreign owned and controlled companies, will be treated as “foreign banks” in terms of which a company owned by non-residents ‘means an Indian company where more than 50% of the capital in it is beneficially owned by non-residents and/or “controlled” by non-residents. The term ‘control’ has been defined as under:  

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