Expansion plans of foreign banks need to wait more
Foreign banks planning to expand operations in India by setting up wholly owned subsidiaries after the passage of the Banking Laws (Amendment) Bill are in for a disappointment.
The banks wanted the government to introduce a key clause that would have allowed the Reserve Bank of India to waive stamp duty or capital gains tax on their conversion to a wholly owned subsidiary from a branch mode of operation. All the 41 foreign banks operating in India do so on the branch mode.
This means the expected surge of foreign investments from abroad into the sector might not happen soon. Foreign banks do not anticipate buying into existing private sector banks and so the most significant entry route they were contemplating was that of wholly owned subsidiary.
These provisions, however, did not find their way into the final Bill cleared by Lok Sabha on Tuesday. Instead it is expected that the changes could figure in the amendments to the Indian Stamp Duty Act and possibly the Finance Bill for 2013-14.
For the foreign banks in India and those planning to apply for a licence from the RBI, it means a stand still, possibly till the time RBI hands out new bank licences to domestic companies. Several of them plan to convert into wholly owned subsidiaries which the RBI too prefers as this makes it easier to track their India based assets and liabilities.
Finance ministry officials had at one stage assured several bank representatives that these
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