With increasing globalization, the presence of foreign banks must expand, mainly because they specialize in providing sophisticated financial products and facilitate the flow of foreign capital. Their increased presence would meet the requirements of the growing Indian economy
Currently, foreign banks can operate in India through branches, by setting up a Wholly-Owned Subsidiary (WOS), or a subsidiary with aggregate foreign investment up to 74% of the paid-up capital in a private bank (up to 49% under the automatic route). Also, at least 26% of the paid-up capital will have to be held by Indian residents at all times, except with respect to a WOS. A foreign bank can establish a WOS either through conversion of existing branches into a subsidiary or through a fresh banking license.
A subsidiary of a foreign bank will be subject to the licensing requirements and conditions broadly consistent with those for new private sector banks. Guidelines for setting up a WOS will be issued separately by the RBI.
In the case of NRIs, individual holding is restricted to 5% of the total paid-up capital, and the aggregate limit cannot exceed 10% of the total paid-up capital both on a repatriation and non-repatriation basis. This can be raised to 24% by a special resolution by its General Body
In the case of Foreign Institutional Investors (FIIs)/ Foreign Portfolio Investors (FPIs), individual holding is restricted to less than 10% of the total paid-up capital. The aggregate limit for all FIIs/FPIs cannot exceed 24% of the total paid-up capital, which can be raised to 74% by the bank through a resolution by its Board of Directors, followed by a special resolution by its General Body. For public sector banks, Foreign Direct Investment (FDI) and portfolio investment is limited to 20%.