A representation has been made to the RBI by all foreign banks operating in India that they need a level playing field if the apex bank wants them to get incorporated locally.

Foreign banks had been given the option by RBI to convert their branch operations into wholly owned subsidiaries (WOS) without the branch licensing available to the domestic counterparts. No bank came up to avail the scheme so the apex bank has decided to make the option of WOS mandatory for all foreign banks.

Foreign banks have said that they need some incentives in order to convert their branches to subsidiaries. The banks have asked for a liberal branch licensing regime and the flexibility to raise subordinated debt for the purpose of capital adequacy.

The monetary policy of April 2010 read: “Some of the lessons from the crisis are to avoid organisational structures which become too big and too complex to fail.

Furthermore, while there is a realisation that an international agreement on cross-border resolution mechanism for internationally active banks is not likely to be reached in the near future, there is considerable merit in subsidiarisation of significant cross-border presence.”

“The wholly-owned subsidiary was to be treated on par with the existing branches of foreign banks for branch expansion in India. No foreign bank, however, applied to establish itself as a WOS or convert to a WOS during the first phase,” said Mr Subbarao.