On January 21, 2011, the Reserve Bank of India (RBI), India's central bank, released its discussion paper on the form of presence of foreign banks in India titled "Discussion Paper—Presence of Foreign Banks in India" (Discussion Paper). According to the criteria noted in the Discussion Paper, in order to enter the Indian banking market, almost all international banks may be required to set up a wholly owned subsidiary (WOS) in India. Further, RBI has reserved itself substantial discretion on when any existing branch of a foreign bank would have to convert into a WOS, including converting any such branch into a WOS if, in the judgment of the RBI, such branch becomes "systemically important" (as defined by the size of such branch's assets). The RBI has invited public comments on the Discussion Paper by March 7, 2011.
The Discussion Paper raises a number of potential issues for international banks operating in India or looking to enter India and acknowledges that India's commitments on banking services in the World Trade Organization's General Agreement on Trade in Services will have to be kept in mind. Unless the elimination of the branch mode as an option for new entrants in India and other changes can be justified as necessary for prudential reasons, these proposals may be open to challenge as inconsistent with India's commitments to the World Trade Organization. Banks should consider whether they would like to bring to the RBI's attention any specific issues that may affect their operations if the proposals in the Discussion Paper become effective. The deadline for submitting any comments to the RBI on the Discussion Paper is March 7, 2011.
For a copy of the Discussion Paper, please click here.
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