Annexure to Roadmap for Presence of Foreign Banks in India
The guidelines for setting up of WOS by foreign banks and conversion of
existing branches of foreign banks into WOS are given hereunder:
Eligibility of the parent bank
1. Foreign banks applying to the RBI for setting up a WOS in India must satisfy
RBI that they are subject to adequate prudential supervision in their home
country. In considering the standard of supervision exercised by the home
country regulator, the RBI will have regard to the Basel standards.
2. The setting up of a wholly-owned banking subsidiary in India should have the
approval of the home country regulator.
3. Other factors (but not limited to) that will be taken into account while
considering the application are given below:
i. Economic and political relations between India and the country of
incorporation of the foreign bank
ii. Financial soundness of the foreign bank
iii. Ownership pattern of the foreign bank
iv. International and home country ranking of the foreign bank
v. Rating of the foreign bank by international rating agencies
vi. International presence of the foreign bank
Capital
4 The minimum start-up capital requirement for a WOS would be Rs. 3 billion
and the WOS shall be required to maintain a capital adequacy ratio of 10 per
cent or as may be prescribed from time to time on a continuous basis, from the
commencement of its operations.
5 The parent foreign bank will continue to hold 100 per cent equity in the
Indian subsidiary for a minimum prescribed period of operation.
Corporate Governance
6. The composition of the Board of directors should meet the following
requirements:
Not less than 50 per cent of the directors should be Indian nationals
resident in India.
Not less than 50 per cent of the Directors should be non-executive
directors
A minimum of one-third of the directors should be totally
independent of the management of the subsidiary in India, its
parent or associates.
The directors shall conform to the ‘Fit and Proper’ criteria as laid
down in RBI’s extant guidelines dated June 25, 2004.
RBI’s approval for the directors may be obtained as per the
procedure adopted in the case of the erstwhile Local Advisory
Boards of foreign bank branches.
7. Accounting, Prudential Norms and other requirements
i. The WOS will be subject to the licensing requirements and conditions,
broadly consistent with those for new private sector banks
ii. The WOS will be treated on par with the existing branches of foreign banks
for branch expansion. The Reserve Bank may also prescribe market
access and national treatment limitation consistent with WTO as also other
appropriate limitations to the operations of WOS, consistent with
international practices and the country’s requirements.
iii. The banking subsidiary will be governed by the provisions of the Companies
Act, 1956, Banking Regulation Act, 1949, Reserve Bank of India Act, 1934,
other relevant statutes and the directives, prudential regulations and other
guidelines/instructions issued by RBI and other regulators from time to time.
8. Conversion of existing branches into a WOS
All the above requirements prescribed for setting up a WOS will be
applicable to existing foreign bank branches converting into a WOS. In addition
they would have to satisfy the following requirements.
Supervisory Comfort
Permission for conversion of existing branches of a foreign bank into a
WOS will inter alia be guided by the manner in which the affairs of the branches
of the bank are conducted, compliance with the statutory and other prudential
requirements and the over all supervisory comfort of the Reserve Bank.
Capital Requirements
The minimum net worth of the WOS on conversion would not be less than
Rs. 3 billion and the WOS will be required to maintain a minimum capital
adequacy ratio of 10 per cent of the risk weighted assets or as may be
prescribed from time to time on a continuous basis. While reckoning the
minimum net worth the local available capital including remittable surplus
retained in India, as assessed by the RBI, will qualify. Reserve Bank will cause
an inspection/ audit to assess the financial position of the branches operating in
India and arrive at the aggregate net worth of the branches. RBI’s assessment of
the net worth will be final.
9. Acquisition of holding in select private sector banks
Foreign banks may apply to the Reserve Bank for making investment in
private sector banks that are identified by RBI for restructuring. Reserve Bank will
examine the application with regard to the eligibility criteria prescribed for foreign
banks to set up a WOS vide paragraphs 1 to 4 above as well as their track record
in restructuring banks.
While permitting foreign banks to acquire stake in the identified private
sector banks, RBI may undertake enhanced due diligence on the major
shareholders to determine their ‘Fit and Proper’ status. Reserve Bank may also
prescribe additional conditions in this regard as may be considered appropriate.
10. Application procedure
Applications for setting up of wholly-owned banking subsidiaries by foreign
banks including conversion of existing branches should be made to the Chief
General Manager-in-Charge, Department of Banking Operations and
Development, Reserve Bank of India, World Trade Centre, Cuffe Parade,
Colaba, Mumbai 400 005. The prescribed application form will be placed on the
RBI's web site.
February 28, 2005
