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Journalism of Courage
RBIs incentives for foreign banks are well-intentioned,but they may not be effective.
The RBI,on Wednesday,unveiled its roadmap for foreign banks operating in India. In an attempt to incentivise existing branches of foreign banks to convert into wholly-owned subsidiaries WOS of their parent banks,it announced that the ones that do so will get near-national treatment. By being treated at par with domestic scheduled commercial banks,WOS will be able to take advantage of the RBIs liberalised branch expansion guidelines,which are not applicable to branches of foreign banks. Importantly,WOS will also be allowed,subject to regulatory approval,to acquire up to 74 per cent of a private domestic bank.
How effective the incentives for subsidiarisation are going to be is an open question. WOS will be treated like domestic banks as far as the RBIs branch guidelines are concerned. However,this will only prove to be tempting if foreign banks aim to expand in the retail segment. Currently,foreign banks like HSBC and Citibank seem more invested in trade and corporate finance. It is unlikely that liberal branch expansion rules will be a game changer for them. Additionally,WOS will have to comply with the RBIs priority sector lending norms 40 per cent of the banks adjusted net bank credit will have to be allocated to certain underserved sectors of the economy which will mean a significant rejig of their portfolios. While the Mamp;A rules applicable to subsidiaries are certainly a sweetener,foreign banks will likely wait for clarity on the capital tax implications of subsidiarisation before taking a call on changing their Indian business models.
