With reference to the rule/rules imposed by the Reserve Bank of India while treating foreign banks, consider the following statements:
- There is no minimum capital requirement for wholly owned banking subsidiaries in India.
- For wholly owned banking subsidiaries in India, at least 50% of the board members should be Indian nationals.
Which of the statements given above is/are correct?
- 1 only
- 2 only
- Both 1 and 2
- Neither 1 nor 2
Explanation
Statement 1 is incorrect
- A wholly-owned subsidiary is a subsidiary that is fully owned and controlled by a parent firm. In banking terminology, it implies that a foreign bank can establish an Indian company in its full ownership and conduct banking locally, similar to Indian banks. The RBI’s “Scheme for Setting up of WOS by Foreign Banks in India” was introduced to give foreign banks greater freedom to grow in India while ensuring they comply with India’s banking regulations. Under this scheme, a foreign bank can either establish a new subsidiary or convert its existing branches into a subsidiary. The minimum paid-up voting equity capital for a wholly owned subsidiary is 5 billion rupees.
Statement 2 is incorrect
- As per the Scheme for setting up wholly owned subsidiaries by foreign banks in India, at least 50% of the directors must be Indian nationals, NRIs, or PIOs, with the specific requirement that one-third of the directors must be Indian nationals residing in India. The statement is incorrect because it limits the 50% requirement only to “Indian nationals,” thereby excluding NRIs and PIOs. Additionally, there is a separate requirement that at least one-third of the directors must be Indian nationals who are resident in India.
