Reserve Bank of India’s (RBI) guidelines on the wholly owned subsidiary (WOS) model for foreign banks in India are not very attractive for foreign banks, experts said a day after the guidelines were released.
According to consultants working closely with these banks, none of the large foreign banks are in a hurry to abandon the branch model of banking in favour of the WOS model. While Citibank and HSBC India declined to comment on RBI’s framework, a Standard Chartered spokesperson said it would be prematured to talk about the guidelines without reviewing them and their implications.
“Except the part that RBI has opened up consolidation through foreign banks, these guidelines may not cause much change in the banking system,” said Abizer Diwanji, partner and national leader, Financial Services, EY.
In the guidelines announced late on Wednesday, RBI had said that foreign banks looking at merger and acquisition (M&A) transactions with Indian private sector banks would be permitted, subject to regulatory approvals, to the overall foreign investment limit of 74%.
“I wouldn’t really go through the pains of an M&A. The sort of banks which are thrown as targets are very specialist, very intense in terms of their regionalisation. So I think the market also has to act with some caution here,” Naina Lal Kidwai, group general manager and country head, HSBC India was quoted as saying earlier.
RBI’s guidelines on WOS state that banks which came to India after August 2010 are mandated to convert to the WOS model, if they have complex structures, do not provide adequate disclosure in their home jurisdiction, are not widely held, belong to jurisdictions having legislation giving a preferential claim to depositors of home country in a winding up proceeding.
About 10 banks have come to India after August 2010, according to Diwanji. These include Japan’s Sumitomo Mitsui Banking Corporation, South Korea’s Woori Bank and Sberbank which is Russia’s largest commercial bank. “What constitutes a complex structure is at the RBI’s discretion,” he added.
Banks which came before that date have the option of choosing between the branch and the WOS model for banking in India.
Experts say reciprocity is one of the key criteria that RBI is using to vet applications for WOS. Foreign banks in India will be treated in a similar manner as to which Indian banks are treated in their home countries.
“The flip side that a lot of people are missing is that this is