The Reserve Bank of India has announced it will allow foreign banks to expand in the country.

In a bid to strengthen regulation in the wake of the crisis, the bank issued a new set of rules managing overseas banks’ establishment of branches in the country.

The move signals the most widespread liberalisation of the country’s banking industry in almost 10 years.

Among the conditions outlined in the new regulation are a minimum branch capital level of INR5bn ($80m), and conversion by foreign banks to a wholly owned subsidiary (WOS) structure.

The Reserve Bank of India claimed the new rules permit banks to open branches "on a par with Indian banks".

Previously, international banks’ operations in the country had been strictly regulated, particularly as concerns the permitted number of branches.

The proposed framework reads: ""Wholly-owned subsidiaries may be permitted, subject to regulatory approvals and such conditions as may be prescribed, to enter into M&A transactions with any private sector bank in India, subject to the overall foreign investment limit of 74%."

While being allowed to continue as branches, foreign banks active in the country since before August 2010 " will be incentivised to convert into WOS (wholly owned subsidiaries) because of the attractiveness of the near-national treatment afforded to WOS," according to the Reserve Bank.

Though welcomed by the industry as a whole, the news has caused confusion among some.

A senior executive of a foreign bank in India is reported as saying: "The guideline does not deal with many of our questions.

"Most of us are still not sure about the tax treatments. We will need more details on that front before taking a decision."


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