Q. With the reference to the rule/rules imposed by the Reserve Bank of India while treating foreign banks, consider the following statements:

  1. There is no minimum capital requirement for wholly owned banking subsidiaries in India.
  2. For wholly Owned banking subsidiaries in India, at least 50% of the board members should be Indian nationals.

Which of the statements given above is/are correct?

  • 1 only
  • 2 only
  • Both 1 and 2
  • Neither 1 nor 2

Answer: (b) 2 only

Wholly Owned Banking Subsidiaries
  • Wholly owned banking subsidiaries are companies that are fully owned and controlled by a parent bank, with the parent holding 100% of the subsidiary’s shares. These subsidiaries can take various forms and may operate independently of the parent bank, providing a variety of financial services.
  • The setting up of a wholly-owned banking subsidiary (WOS) in India should have the approval of the home country regulator.
  • 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.
  • The parent foreign bank will continue to hold 100 per cent equity in the Indian subsidiary for a minimum prescribed period of operation.
  • 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.
  • 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.
  • 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.
    • 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.