Invest In India

As per the Financial Express Bureau report, The Reserve Bank of India expects existing branches of foreign banks, of a certain size to voluntarily convert themselves into wholly owned subsidiaries (WOS). In a discussion paper on presence of foreign banks in India, the central bank said on Friday, it would be mandatory for banks which opt for branch mode of presence, in the country, to convert themselves into WOS if they become systemically important. To incentivise them to set up or convert into an WOS, the central bank says it could consider extending to foreign banks a branch expansion policy as applicable to private sector banks.

Moreover, foreign banks WOS, with a capital adequacy ratio of at least 9% for preceding two completed years, and the accounting year and net non performing loans of less than 7% could declare a dividend. It appears that for any Capital Gains Tax arising out of transfer of property, goodwill and other assets of capital nature to its own newly incorporated subsidiary in India the provisions of Section 47(iv) of Income Tax Act, 1961 would be applicable to foreign banks converting their branches into subsidiaries. Foreign banks may approach the appropriate authority for suitable clarification

Accordingly, WOS would be able to open branches in tier-3 to 6 centres. Like in the case of domestic banks the foreign banks, for setting up branch in tier-1 and tier-2 centres, would have to present an annual plan and have to maintain a balance between the number of branches opened in urban and rural centres.

In another major relief to foreign banks, the RBI has proposed a priority sector limit of 32% to WOS as against 40% for domestic banks though the sub-target of 18% for agriculture would have to be met.

Currently, top five foreign banks account for more than 70% of total balance sheet assets of foreign banks in India