Customers can look forward to more competitive and enhanced banking services with the Reserve Bank of India (RBI) announcing the procedure that will allow foreign banks to acquire domestic private sector banks and open up more branches in the country.
Late on Wednesday, the central bank released the framework for setting up wholly-owned subsidiaries (WOS) by foreign banks in India. “As a locally incorporated bank, the WOS will be given near national treatment, which will enable them to open branches anywhere in the country at par with Indian banks (except in sensitive areas where the RBI’s prior approval will be required),” the RBI said in a statement.
Foreign banks which want to set up wholly-owned subsidiaries will have to have a minimum paid-up voting equity capital of `5 billion. Existing branches of foreign banks who want to convert into WOS need to have a minimum net worth of `500 crore. In terms of governance, at least 50 per cent of the directors should be Indian nationals or NRIs or PIOs and of those, at least one third of the directors have to be Indian nationals living in India.
Furthermore, under the WOS model foreign banks will have to undertake priority sector lending commitments which at 40 per cent of total advances would be at par with domestic commercial banks. However, the central bank has said that it will provide an adequate transition period for existing foreign banks operating here who want to convert into WOS.
Under the WOS framework, foreign banks are also allowed to dilute their stake up to 74 per cent in accordance with the existing FDI policy. However, the RBI has stated that in order to reduce their stake the foreign bank WOS will have to list its shares on Indian stock exchanges.
That’s not all. The RBI has also opened the window for foreign banks to acquire domestic lenders but with restrictions. “So far as acquiring domestic banks by the foreign lenders are concerned, the overall investment limit of 74% would be considered after a review is made with regard to the extent of penetration of foreign investment in Indian banks and functioning of foreign banks,” RBI said.