March, 2005

The Reserve Bank of India (RBI), the country’s nodal bank has recently announced a new policy framework for the presence of foreign banks in India. Some highlights of the revised policy are:

. Foreign banks applying to the RBI for setting up a wholly owned idiary in India must satisfy that they are subject to adequate prudential supervision in their home country.

. The setting up of a wholly owned banking subsidiary in India should have the approval of the home country regulator.

. Other factors that will be taken into account while considering the application include economic and political relations between India and the country of the foreign bank as well as its ownership pattern.

. Minimum start-up capital requirement for a wholly owned subsidiary of a foreign bank would be Rs. 3 billion ($68 million).

. The wholly owned arm will also be required to maintain a capital adequacy ratio of 10 percent on a continuous basis, from the commencement of its operations.

. For new and existing foreign banks, the RBI would go beyond the existing World Trade Organisation (WTO) commitment of 12 branches in a year.

. Foreign banks would also be allowed to acquire a "controlling stake" in domestic private sector banks that are identified by RBI for restructuring.