Guidelines for foreign banks’ subsidiarisation soon: Subbarao
5 Jun 2013 11:46 PM GMT
The Reserve Bank of India Governor Duvvuri Subbarao on Wednesday said that the RBI will take a call on final guidelines for foreign banks' subsidiarisation after government resolves pending legal and taxation issues, which he expected in the next few months.
He also said that the RBI will nudge the existing foreign banks to get incorporated locally.
'The final guidelines on whether foreign banks, which roughly constitute half the commercial banks in the country today, should get incorporated locally here, will be issued once these issues are resolved, which I hope to see in the next few months,' Subbarao told a banking conference organised by the Indian Merchants Chamber here.
At present, there are 43 foreign banks operating in the country and all of them are operating as branches without establishing subsidiaries, he said.
Only the largest by branch presence StanChart has its depository shares trading on the domestic bourses, but even then it has not adopted a subsidiary route here.
The idea that the RBI is working on is to nudge these large foreign banks with say 30 or more branches, to get incorporated locally.
There are only MNC banks — StanChart, HSBC and Citi which have more than 30 branches. Though RBS has 31 branches, it is winding down its local retail operations.
These large banks are open to the idea of local incorporation provided they get the level-playing field with the local banks and get the stamp duty waived.
'We have not come to a final decision on the issue of subsidiary model to be followed by foreign banks due to some taxation and legal issues. It's not in the domain of the RBI, as taxation issues will be decided by the government,' the governor said.
Stating that he cannot force the existing foreign banks to get incorporated locally due to the contractual obligations, the governor said, however, new players would have to follow the subsidiary route once the government resolves the taxation and legal issues. 'The thinking at the RBI now is that the existing foreign banks, which are already operating as branches, have contractual obligations. We can't demand them to convert into branches. For the new entrants, we might think for that policy even at the time of entry,' Subbarao said.
Listing out the regulatory and functional benefits of going for the subsidiary model, the governor said the subsidiary form provides several comforts to regulators such as better safeguards to protect the interest of depositors, greater leverage to the host country to ring-fence asset and liabilities of the bank and easy to define jurisdiction.
Since a subsidiary will have its board, including independent directors, this can provide sufficient separation between the bank and its owners to ensure that the interests of domestic depositors are not compromised, the Governor said.
Another benefit is that there will be a 'clear delineation between the assets and liabilities of the bank and those of its parent and affords greater leverage to the host country to ring-fence the operations,' he said adding it is local economic conditions rather than global perspectives that drive the managerial decisions of subsidiaries.
He also said that the RBI will nudge the existing foreign banks to get incorporated locally.
'The final guidelines on whether foreign banks, which roughly constitute half the commercial banks in the country today, should get incorporated locally here, will be issued once these issues are resolved, which I hope to see in the next few months,' Subbarao told a banking conference organised by the Indian Merchants Chamber here.
At present, there are 43 foreign banks operating in the country and all of them are operating as branches without establishing subsidiaries, he said.
Only the largest by branch presence StanChart has its depository shares trading on the domestic bourses, but even then it has not adopted a subsidiary route here.
The idea that the RBI is working on is to nudge these large foreign banks with say 30 or more branches, to get incorporated locally.
There are only MNC banks — StanChart, HSBC and Citi which have more than 30 branches. Though RBS has 31 branches, it is winding down its local retail operations.
These large banks are open to the idea of local incorporation provided they get the level-playing field with the local banks and get the stamp duty waived.
'We have not come to a final decision on the issue of subsidiary model to be followed by foreign banks due to some taxation and legal issues. It's not in the domain of the RBI, as taxation issues will be decided by the government,' the governor said.
Stating that he cannot force the existing foreign banks to get incorporated locally due to the contractual obligations, the governor said, however, new players would have to follow the subsidiary route once the government resolves the taxation and legal issues. 'The thinking at the RBI now is that the existing foreign banks, which are already operating as branches, have contractual obligations. We can't demand them to convert into branches. For the new entrants, we might think for that policy even at the time of entry,' Subbarao said.
Listing out the regulatory and functional benefits of going for the subsidiary model, the governor said the subsidiary form provides several comforts to regulators such as better safeguards to protect the interest of depositors, greater leverage to the host country to ring-fence asset and liabilities of the bank and easy to define jurisdiction.
Since a subsidiary will have its board, including independent directors, this can provide sufficient separation between the bank and its owners to ensure that the interests of domestic depositors are not compromised, the Governor said.
Another benefit is that there will be a 'clear delineation between the assets and liabilities of the bank and those of its parent and affords greater leverage to the host country to ring-fence the operations,' he said adding it is local economic conditions rather than global perspectives that drive the managerial decisions of subsidiaries.
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