New roadmap for foreign banks in India?

Recent turmoil in the global financial market may force the Reserve Bank of India (RBI) to rethink its roadmap for foreign banks, announced on 28 February 2005. The roadmap proposed a two-pronged approach to place foreign banks on par with Indian banks.

The first approach was to encourage the consolidation of public and private banks in India; the second envisaged a gradual, phased increase in the presence of foreign banks, meeting India’s commitments to the World Trade Organization (WTO). The roadmap also stated that policy decisions regarding foreign investment in the banking sector which had been set out by the Ministry of Commerce and Industry in its press note dated 5 March 2004 would also be applied gradually.

The implementation of the roadmap was divided into two phases. In the first phase (March 2005 to March 2009), foreign banks wishing to enter India could do so either through a wholly owned subsidiary (WOS) in India, or by establishing a bank branch there. The RBI also permitted foreign banks already established in India to convert their branches there into subsidiaries.

Sonali Sharma is a partner and Suprio Bose is an associate at Juris Corp. The firm is a full-service law firm based in Mumbai and specializes in financial transactions including capital markets and securities, banking, corporate restructuring and derivatives.