The Reserve Bank of India is likely to issue the final guidelines on subsidiarisation of foreign banks in the next few months after some legal issues are sorted out.
The RBI Governor, D. Subbarao, said: “We have yet to resolve a few legal issues (relating to subsidiarisation) which we hope can be done in the next few months. Thereafter, we expect to issue the final guidelines.” The roadmap for the presence of foreign banks in India put out by the Reserve Bank in 2005 allows foreign banks a choice — of coming in either as a branch or as a subsidiary but not both at the same time.
Even so, all the 43 foreign banks operating in India have chosen to come in only in the branch mode.
Post the 2008 financial crisis and in the backdrop of the role played by foreign banks in spreading the crisis to other economies, a need was felt to ring-fence the local operations of foreign banks from their parent.
A paper was floated by the RBI in 2011 to discuss the viability of this initiative.
“The proposed framework leans towards the subsidiarisation model for fresh entrants while nudging existing foreign banks with a balance-sheet size above a threshold to convert from a branch model to a subsidiary model,” the RBI said.
Over the last two years, the RBI said it has worked with the Government to resolve the major taxation issues such as exemption from stamp duty and capital gains tax on conversion of a foreign bank from a branch to a subsidiary structure.