licensing a foreign company as bank

Foreign banks wishing to open a branch in India require a license under the Banking Regulation Act, 1949. India issues a single class of banking license unlike some other countries. No undue restrictions are placed on them on their operations. In some countries there is a requirement of multiple licenses for dealing in local currency and foreign currencies with different categories if clientele. Like domestic banks, foreign banks enjoy similar facilities to the payments and settlement systems and they are admitted as full members of clearing houses and payments system.

Procedurally, foreign banks are required to apply to RBI for opening their branches in India. Foreign banks’ application for opening their maiden branch is considered under the provisions of Section 22 of the Banking Regulation Act,1949. Before granting any license under this section, RBI may require to be satisfied that the Government or the law of the country in which it is incorporated does not discriminate in any way against banks from India. Other conditions as enumerated in Section 2(5) of the Banking Regulation Act, 1949 are also required to be fulfilled.

licensing a foreign company as bank

the restrictive practices of certain foreign countries, India in respect of the licensing and operation of the foreign bank branches as illustrated by the following

  • India issues a single class of banking license to foreign banks and does not place any limitations on their operations. All banks can carry on both retail and wholesale banking.
  • Deposit insurance cover is uniformly available to all foreign banks operating in India at a non-discriminatory rate of premium.
  • The norms for capital adequacy, income recognition and asset classification are by and large the same. Other procedural norms such as exposure limits are the same as those applicable to Indian banks.

The salient features of continuous authorization policy

(a) Individuals/ professionals who are ‘residents’ or (‘residents’ as per FEMA definition) with        10 years of experience in banking and finance at a senior level would be eligible to promote banks, singly or jointly.

(b) Entities/ groups in the private sector which are ‘owned and controlled by ‘residents’ [as per FEMA definition], having a successful track record for at least 10 years, with total assets of Rs. 50 billion or more, where in non-financial business of the group does not exceed 40% or more in terms of total assets/ in terms of gross income are also eligible to promote banks.

(c) Existing Non- Banking Financial Companies (NBFCs), that are ‘controlled by residents’ [as per FEMA definition], with a successful track record for at least 10 years will be eligible to convert into a bank or promote a new bank.

[Note: Any NBFC, which is a part of the group that has total assets of Rs. 50 billion or more and that the non-financial business of the group accounts for 40 per cent or more in terms of total assets/ in terms of gross income, is not eligible].

d) ‘Fit and Proper’ criteria: The RBI assess the promoters under the following parameters to decide whether such promoters are’ fit and proper’ for promoting banks.

       (i) Where promoters are individuals: Each of the promoters should have a minimum 10    years of experience in banking and finance at a senior level. The Promoters should have a past record   of sound credentials and integrity. The Promoters should be financially sound and should have a successful track record for at least 10 years.

      (ii) Where promoters are entities/ NBFCs: The promoting entity/ promoter group should have a minimum 10 years of experience in running its/ their businesses. The promoting entity and the promoter group should have a past record of sound credentials and integrity. The promoting entity and the promoter group should be financially sound and should have a successful track record for at least 10 years. Preference will be given to promoting entities having diversified shareholding.

FAQs

What are the regulatory requirements for a foreign company to operate as a bank in India?

The foreign company must meet the eligibility criteria set by the RBI, including minimum capital requirements, experience in banking operations, and adherence to prudential norms. Additionally, it needs to obtain the necessary approvals and licenses from the RBI.

What types of banking activities can a foreign company undertake in India?

Depending on the type of license granted by the RBI, a foreign company can engage in various banking activities such as accepting deposits, lending, providing investment services, and offering other financial products.

Are there any restrictions on foreign ownership or control of banks in India?

Yes, the RBI imposes restrictions on the extent of foreign ownership or control of banks in India. These restrictions may vary depending on factors such as the type of bank and the regulatory framework in place at the time.

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