RBI foreign bank rules analysed

Author: Ashley Lee | Published: 11 Nov 2013
  • The Reserve Bank of India's (RBI) new regulations regarding foreign banks that establish wholly-owned subsidiaries allow banks that entered India before August 2010 to make a choice as to whether they will convert to subsidiaries or remain branches;
  • Most foreign banks in India focus on their investment banking and capital markets businesses. It is thought they will choose to remain branches;
  • Banks that convert must contend with more stringent priority sector lending norms and receive a letter of comfort from their parent that may raise the cost of capital;
  • However the new regulations explore the possibility of M&A between foreign banks and private sector banks in the future;
  • Wholly-owned subsidiaries must also comply with RBI's prudential requirements, requiring these foreign banks to silo capital in India. This ignores global initiatives regarding the resolution of international banks and banks considered 'too big to fail.'

On November 5, Reserve Bank of...