With reference to the rule/rules imposed by the Reserve Bank of India while treating foreign banks, consider the following statements:

Question

1. There is no minimum capital requirement for wholly owned banking subsidiaries in India.

2. For wholly owned banking subsidiaries in India, at least 50% of the board members should be Indian nationals.

Which of the statements given above is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer 1

(b) 2 only

Explanation:

• Statement 1: This statement is incorrect. The Reserve Bank of India (RBI) mandates a minimum capital requirement for wholly owned subsidiaries of foreign banks operating in India. As of current regulations, the minimum capital requirement is often set to ensure financial stability and risk management.

• Statement 2: This statement is correct. The RBI requires that a significant portion of the board members of wholly owned subsidiaries of foreign banks in India should be Indian nationals to ensure local oversight and compliance with Indian regulations. The parent foreign bank will continue to hold 100 percent equity in the Indian subsidiary for a minimum prescribed period of operation. The composition of the Board of directors should meet the following requirements: Not less than 50 percent of the directors should be Indian nationals resident in India.

Therefore, only statement 2 is correct, making option (b) the right answer.