India has upped the pressure on foreign banks to put down roots in the country by converting their branches into subsidiaries. But will a package of incentives be enough to allay their fears over tax and onerous lending rules?
The havoc wrought by the global financial crisis on the worldwide banking industry had a chilling effect on India’s regulators. What, they wondered, would have happened if the Indian branches of international banks had been forced by their head offices to disinvest from India to shore up failing subsidiaries elsewhere?
Such fears did not come to pass, but the concern helped revive a Reserve Bank of India (RBI) proposal to have what are currently branches of international banks operating in India convert themselves into locally incorporated but wholly owned subsidiaries. This would ensure that they could be more closely regulated and monitored by Indian authorities.
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