RBI permits foreign banks' subsidiary to acquire private banks

November 7, 2013

As per the guidelines released by the Reserve Bank of India (RBI), the Wholly-Owned Subsidiary (WOS) of foreign banks are allowed to acquire domestic private sector banks as well as open branches anywhere in the country. In addition, as per the guidelines:

Foreign bank subsidiary are permitted to be listed on local stock exchanges.
As a condition, foreign bank subsidiary will not be permitted to acquire more than 74%, the sectoral limit for overall foreign investment, in the private banks they may acquire.
WOSs will be given near national treatment which will facilitate them to open branches anywhere in the country at par with Indian banks (except in certain sensitive areas where the Reserve Bank’s prior approval would be required).
The initial minimum paid-up voting equity capital or net worth for a WOS would be Rs 500 crore.
As a measure of prevention against the possibility of the Indian banking system being dominated by foreign banks, there are certain measures to contain their expansion if the share of foreign banks exceeds a critical size.

What is the critical point beyond which RBI will not allow foreign investments?

RBI will prohibit further entry of new WOSs of foreign banks or capital infusion, when the capital and reserves of all foreign banks in India exceed 20% of the capital and reserves of the entire banking system.

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