In a move that is likely to trigger acquisitions of small- and mid-size Indian banks, the Reserve Bank of India (RBI) on Wednesday allowed foreign lenders to acquire domestic banks.
Under the guidelines released for foreign banks, foreign banks seeking to set up subsidiaries in India would need at least Rs. 500 crore as initial paid-up voting equity capital, and need to have at least 25% of their branches in rural areas..
The central bank said that foreign lenders that want to enter the country but have complex structures or lack adequate disclosure, or which are not widely held, will be let in only as wholly owned subsidiaries (WOS).
“WOSs may be permitted, subject to regulatory approvals ... to enter into mergers and acquisition transactions with any private sector bank in India subject to the overall foreign investment limit of 74%,” said RBI.
At present, the foreign banks operate through their branches. Under the WOS model, the foreign banks will be required to set up a subsidiary under the Companies Act and operate as an Indian entity.
Foreign banks operating in India before August 2010 will have the option of continuing their banking business in the country as branches. It also allowed foreign bank subsidiary to list on local stock exchanges.
In India, there were 43 foreign banks operating through a network of 333 branches as of March 2013.
The central bank has said that not less than two-thirds of the directors of the wholly-owned subsidiary should be non-executive directors and at least one-third of them should be independent of the management of the subsidiary in India.