When large foreign banks that were so far been operating under the branch licensing norms, approached the banking regulator for separate licenses, one for a retail subsidiary and another for corporate banking under the branch route.
With regard to this , the Reserve Bank of India is stick to its proposal that foreign banks would run their operations in India as a single wholly owned subsidiary (WoS) and rejected the suggestion of overseas lenders about granting dual licenses.
The RBI is not keen on granting dual licensing and wants foreign banks to operate only under the wholly owned subsidiary (WoS) route, said one of the anonymous officials.
The 2008 global financial crisis provoked the central bank to constrict the rules that govern foreign banks in India. As a result, in 2013 RBI had released norms for setting up a WoS for overseas lenders. The central bank had not made it mandatory for existing foreign banks to convert their Indian operation into a subsidiary and the regulator expected for voluntary adoption. This was because, the RBI had assured foreign banks that subsidiaries would be treated similarly as local banks in terms of branch licensing.
Foreign banks together are given around 15-20 branch licenses in a year, while branch licensing for domestic banks has been liberalized that allows them to open branches with certain conditions.
The overseas lenders were told that if they opt for the subsidiary route, they would get stamp duty benefits and allowed to acquire local private banks.
Anyhow, large foreign banks like Citibank, HSBC, and Standard Chartered have revealed little interest in adopting the WoS route.
The overseas lenders argue saying that
- converting to subsidiaries will affect their ability to find the resources to write big ticket loans since the units, different branches won’t be able to leverage their parent’s balance sheet.
- DBS Banks and SBM Bank (Mauritius) have opted to convert their branches into a subsidiary
- Most of the large foreign lenders had proposed a dual license agreement (one for retail banking operation under the subsidiary format and another for branches to do wholesale banking).
But the RBI is not happy with the idea of dual licensing:
- as it is not convinced that the foreign banks will be serious about retail operations
- as the margins and business volumes are low in retail operations
- they may not focus on retail business that is important to increase banking incursion in the country.
The wholly owned subsidiary (WoS) route was proposed mainly:
- for protecting local retail depositors
The RBI is of the view that local incorporation provides effective control to the regulators.