Indian bank branches in UK face closure
The Prudential Regulatory Authority (PRA) of the Bank of England had issued a consultation paper outlining the new rules in February. The consultation ended in May and the new rules came into force from Friday.business Updated: Sep 07, 2014 01:40 IST
The Bank of England on Friday issued tougher rules that could lead to the closure of several bank branches including some headquartered in India.
Banks need to follow the new regime designed to reduce the impact of the potential failure of their parent banks in India and other non-EU countries on the UK.
The Prudential Regulatory Authority (PRA) of the Bank of England had issued a consultation paper outlining the new rules in February. The consultation ended in May and the new rules came into force from Friday.
The rules affect ‘branches’ of international banks and not ‘subsidiaries’. According to the Bank of England, there are 145 branches of international banks operating in Britain, accounting for 31 per cent (2.4 trillion pounds) of the total assets of the banking system.
The five Indian banks who operate ‘branches’ in the UK and cater mainly to the large Indian diaspora are Bank of Baroda, Bank of India, Export-Import Bank of India, Syndicate Bank and State Bank of India. Together, they hold millions of pounds in deposits.
The four Indian banks who operate as ‘subsidiaries’ are Union Bank of India, Punjab National Bank, ICICI and Axis Bank.
In order to continue functioning in the UK, Indian banks with branches will have to go through a lengthy overhaul of their legal structures into subsidiaries or deliver what is called “a very high level of assurance” from the bank regulator in India.
For branches from outside the EU, the Bank of England said that the new regime focuses on three main factors: Whether the home state supervision of the firm is equivalent to that of the PRA; the branch’s UK activities such as whether they will undertake wholesale or retail banking activities; whether the PRA has assurance from the home supervisor over the firm’s resolution plan in a way that reduces the impact on financial stability in the UK.
It said: “Where the PRA is satisfied of these factors, it will also need to have a clear and agreed split of prudential supervisory responsibilities with the home state supervisor. Where the PRA is not content, it will consider the most appropriate course of action, which could include refusing authorisation of a new branch or cancelling an authorisation of an existing branch”.