Introduction
The Reserve Bank of India (RBI) has released comprehensive guidelines in 2025, thru Notification dated 28/11/2025, for foreign banks seeking to establish Wholly Owned Subsidiaries (WOS) in India. These norms aim to strengthen financial stability, protect depositors, and ensure effective regulatory oversight. This move aligns with global best practices and lessons learned from the 2008 financial crisis, which highlighted the need for robust local incorporation of foreign banks.
Why Local Incorporation Matters
The global financial crisis underscored the risks posed by large, interconnected financial institutions. RBI’s guidelines emphasize that local incorporation offers several benefits:
- Separate Legal Entity: A WOS has its own capital base and board of directors.
- Ring-Fenced Assets: Clear separation of domestic and foreign parent liabilities.
- Regulatory Control: Greater oversight by Indian regulators.
- Depositor Protection: Enhanced safeguards for local retail customers.
These measures ensure that foreign banks operating in India are resilient and accountable under Indian laws.
Modes of Presence: Branch vs. WOS
Foreign banks can operate in India through:
- Branch Mode
- Wholly Owned Subsidiary Mode
However, RBI mandates WOS presence in specific cases, such as:
- Banks from jurisdictions with preferential deposit claims.
- Banks lacking adequate disclosure norms.
- Complex or non-transparent ownership structures.
- Systemically important foreign banks (assets ≥ 0.25% of total Indian banking assets).
Eligibility Criteria for WOS
To set up a WOS, foreign banks must:
- Obtain approval from their home country regulator.
- Demonstrate strong prudential supervision and consolidated oversight.
- Meet RBI’s standards on financial soundness, ownership, global ranking, and risk management systems.
Additionally, RBI considers economic and political relations with the parent bank’s home country and reciprocity in banking arrangements.
Key Regulatory Requirements
1. Minimum Capital
- Initial paid-up voting equity capital: ₹500 crore.
- Entire capital must be remitted upfront in free foreign exchange.
2. Capital Adequacy
- WOS must comply with Basel III norms from inception.
- Maintain a minimum capital adequacy ratio of 10% for the first three years.
3. Corporate Governance
- At least 51% of directors must meet Banking Regulation Act standards.
- Two-thirds should be non-executive; one-third independent.
- 50% directors must be Indian nationals/NRIs/PIOs.
4. Priority Sector Lending
- WOS must meet domestic banks’ PSL targets.
- Converted foreign banks with <20 branches get up to 5 years for compliance.
Operational Guidelines
- WOS must operate on Core Banking Solution (CBS) from inception.
- Maintain a Customer Grievance Cell and comply with RBI’s Ombudsman Scheme.
- Adhere to KYC/AML/CFT norms and RBI’s outsourcing risk management directions.
National Treatment & Restrictions
While WOS enjoys near-national treatment, RBI may restrict new WOS entries if foreign banks’ combined capital exceeds 20% of India’s banking system reserves. Similarly, branch mode expansion is capped under WTO commitments.
Conversion of Branches into WOS
Foreign banks operating in branch mode may convert into WOS by:
- Applying through RBI’s PRAVAAH portal.
- Registering under the Companies Act, 2013.
- Obtaining RBI’s license under Section 22 of the Banking Regulation Act.
- Completing amalgamation as per Section 44A.
Conclusion
RBI’s 2025 guidelines for WOS aim to create a safer, more transparent banking environment in India. By mandating strong governance, capital adequacy, and compliance norms, these regulations ensure foreign banks contribute positively to India’s financial stability.