Issues faced by foreign bank when entering in India?

 

What Issues faced by foreign bank when entering in India??

Capital requirement

The minimum capital required for WOS (wholly owner subsidiary) at the time of entry may generally be in line with the capital prescribed for a new private sector bank. Therefore the WOS of foreign bank would be treated at par with the new private sector bank in regards to minimum capital requirement. The WOS shall be required to maintain a minimum capital adequacy ratio of 10% of the risk weightage asset.

Licences granting issue

 generally RBI has been thrift in granting finance licences. Banking licences in the private sector were last granted in 2003 again in 2014 and most recently in 2019. It is quite difficult for foreign banks to obtain licences due to the complexity in questions. In additional administrative issue licenceing of foreign banks is concerned with the relationship between India and foreign banks country of origin.and RBI want more foreign bank and branchs opened in rural and backwards areas for rural population development but this very costly for foreign banks its another issue for foreign banks.

Corporate governance

In order to make healthy corporate governance practices, role of independence director was important. Independence directors also ensure sufficient separations between the board of banks and its owner to ensure that the board does not have unfitted ability to act in the interest of owners. In order to ensure that the board or director of WOS of foreign bank set up in India act in the best interest of local institutions, RBI may in line with the best practices in other country, mandate that

1. Not less than 50% of directors should be Indian national resident in India

2. Not less than 50% of directors should be non-executive directors

3. Minimum of one third of the directors should be totally independent of the management of subsidiary in India its parent or associates

4. The directors shall conform to the “fit and proper” criteria as laid down in our extant guideline contained in RBI

Priority sector lending requirement for WOS

Since the WOS of foreign bank will be locally incorporate Bank they should be not treated very differently from domestic banks in respect of priority sector lending norms. Priority sector obligations on wos have, therefore, to be more difficult than for branches of foreign bank. Raghuram Rajan committee has also recommended giving WOSs same right as private sector banks together with the requirements to fulfill priority sector landing norms at per with domestic banks viz. 40% as against 32%. It is also suggested that foreign bank play important role in a foreign trade, therefore, RBI may allow WOS of foreign banks also to classify export finance as a part of their private sector lending

Video for understanding 👇