A discussion paper from the Reserve Bank
of India has concluded that local incorporation for international
banks provides more effective control in any future banking
crisis.
To encourage lenders to operate wholly
owned subsidiaries – instead of operating India-based branches of a
foreign bank – the government proposes to exempt conversions to a
local subsidiary from capital gains tax.
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There are currently 34 foreign banks with
branch networks in India. Combined, the 34 international lenders’
assets accounted for about 7.65% of total sector assets as at 31
March 2010, down from 9.03% the prior year.
Current Indian regulations do not permit
an international lender to own in excess of 5% of a local
bank.
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