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Top executives of foreign banks are making a beeline for appointments with Reserve Bank of India (RBI) Governor Raghuram Rajan. The agenda, among other things, is to discuss the subsidiarisation of foreign banks in India, say people familiar with the development.
Following the central bank announcing the final norms on wholly-owned subsidiaries (WOS) of foreign banks last month, the reciprocity clause in the norms is seen as a barrier to allowing foreign lenders unfettered branch access. This is because the US and several countries in Europe have a conservative approach towards foreign banks. Though RBI has promised “near-national” treatment to foreign lenders if they convert their branches into subsidiaries, it added a caveat, saying the policy was guided by the two cardinal principles of reciprocity and a single mode of presence.
Sources said in the past month, at least seven senior bankers, including global chief executive officers, had met the RBI governor. And, a few more are scheduled to do so in the next few weeks. Regional heads of European and American banks have also met or are scheduled to meet the RBI governor.
“The discussions have been wide, ranging from global economy to opportunities in India. The topic of subsidiarisation has also been discussed,” a source said, on condition of anonymity.
According to sources, bankers have indicated additional concessions have to be offered for foreign banks to convert their India branches into WOS.
“One of the concerns is reciprocity. Foreign banks will want near-national treatment in branch expansion if they decide to set up subsidiaries here. They don’t want a situation in which they create the subsidiary but are not permitted to open branches freely,” said an industry source.
On November 6, RBI had released the framework for setting up wholly-owned subsidiaries by foreign banks in India. It had said it would incentivise foreign lenders to persuade them to convert their branches here into subsidiaries.
RBI clarified foreign lenders wouldn’t have to pay capital gains tax and stamp duty to set up subsidiaries here. If they opt for the subsidiary mode, lenders will also be permitted to acquire local private banks.
Foreign banks have also been promised “near-national treatment” in branch expansion to set up WOS in India, subject to the reciprocity clause.
But most foreign lenders were unimpressed and appeared reluctant in setting up subsidiaries here.
They said lack of clarity on certain areas of taxation, the reciprocity clause, stiff priority sector lending targets and the need for rural presence had made them hesitant in opting for subsidiarisation.
THE INDIA OPPORTUNITY
- Regional heads of European and American banks have met or are scheduled to meet RBI Governor Raghuram Rajan
- Following the central bank announcing the final norms on wholly-owned subsidiaries of foreign banks last month, the reciprocity clause in the norms is seen as a barrier to allowing foreign lenders unfettered branch access
- Though RBI has promised “near-national” treatment to foreign lenders if they convert their branches into subsidiaries, it added a caveat, saying the policy was guided by the two cardinal principles of reciprocity and a single mode of presence
- RBI clarified foreign lenders wouldn’t have to pay capital gains tax and stamp duty to set up subsidiaries here
- According to sources, bankers have indicated additional concessions have to be offered for foreign banks to convert their India branches into wholly-owned subsidiaries
