Question
Q59. 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
Answer: 2
Detailed Explanation
RBI allows foreign banks to operate in India either through branch presence or they can set up a wholly owned subsidiary (WOS) with near national treatment.
• The foreign banks have to choose one of the above two modes of presence and shall be governed by the principle of single mode of presence.
• The initial minimum paid-up voting equity capital for a WOS shall be Rs 5 billion.
• The newly set up WOS of the foreign bank would be required to bring in the
entire amount of initial capital upfront, which should be funded by free foreign exchange remittance from its parent. Hence statement 1 is not correct.
The composition of the board of directors of WOS should meet the following requirements:
• not less than 51 percent of the total number of members of the board of directors shall consist of persons as defined under Section 10A of the Banking Regulation Act, 1949;
• not less than two-third of the directors should be non-executive directors;
• not less than one-third of the directors should be independent of the management of the subsidiary in India, its parent and any subsidiary or other associate of the foreign bank parent;
• not less than 50 per cent directors should be Indian nationals/NRIs/PIOs subject to the condition that one third of the directors are Indian nationals resident in India. Hence statement 2 is incorrect.
