Foreign banks await clarity before rejoicing RBI's WOS move

The Reserve Bank of India (RBI) has rolled out the red carpet for foreign banks to expand in Asia's third largest economy. RBI's new guidelines on subsidiarisation of foreign banks give a near national treatment to these banks by allowing them to open branches anywhere in India. However, experts say it will be a while before these foreign banks actually subsidiarise their operations.

Investment banking firm CLSA has said, “Foreign banks are a bit sceptical about such conversion due to ambiguity in tax-laws regarding this transition". 

The income tax has already notified that the transition to a subsidiary will be neutral on capital gains tax. But bankers say there are yet to receive any forbearance on stamp duty, which is a state subject.

Currently, 43 foreign banks have a presence in India. Of this 13 banks set up operations post August 2010.  These banks include:

1. American Express Banking Corp.
2. Australia And New Zealand Banking Group
3. Commonwealth Bank of Australia
4. Credit Suisse AG
5. HSBC Bank Oman S.A.O.G
6. Industrial And Commercial Bank of China
7. National Australia Bank
8. Rabobank International
9. Sberbank
10. Sumitomo Mitsui Banking Corporation
11. United Overseas Bank
12. Westpac Banking Corporation
13. Woori Bank

These 13 banks and others who come after them have to convert into subsidiaries, but RBI has not given a timeline for the 13 new banks to incorporate themselves.

While foreign banks are not only examining the fine print of subsidiarisation guidelines, some of them are even awaiting RBI’s rules on differentiated licencing which applies to banks that do not dabble in regular banking operations, but specialise in areas like merchant banking. 

The banks believe that RBI may allow such specialised banks to keep less capital. However, CNBC-TV18 has learnt that Japanese banks like the Sumitomo Mitsui Bank are still committed to subsidiarisation as they have a long-term view on India.