In the interview, Mr. Rajan anticipated that issue, saying the new guidelines will require foreign banks to lend to the underprivileged in India, as domestic banks are required to do. "With that will come domestic responsibilities, the same responsibilities that the Indian banks have, to lend toward the underserved areas of the economy and the underserved sectors," he said, "but they have that anyway. The large foreign banks already have those requirements."
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Some foreign banks have been lukewarm toward setting up full subsidiaries in India. Global institutions like Citibank and HSBC do business here using small branches or representative offices from their operations in other countries.
The regulatory framework issued Wednesday requires that foreign banks invest a hefty minimum of 5 billion rupees ($80 million) in equity capital in each subsidiary.
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The new rules also require separate boards for each subsidiary. Two-thirds of the directors must not be executives of the bank and at least half of the directors must be Indian citizens.
Such boards will not only require additional expense and organization for the foreign banks, compared with operating through branches, but will also force the banks to open their books to outside directors, raising the possibility that business secrets would leak.
Regulations already allow foreign banks to convert their branches in India into wholly owned subsidiaries. Foreign banks have not done so because they had little incentive. The new rules create that incentive by allowing foreign banks to open branches all over the country with few limits if they set up subsidiaries. India currently allows just 15 or so new branches a year to be opened by all foreign banks combined.
The central bank said it would impose limits if foreign banks gained too large a share of the domestic market through the subsidiaries, but did not specify the threshold for this.
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Sujan Hajra, the chief economist at AnandRathi, a financial services company based in Mumbai, said that setting up local subsidiaries in India would probably force foreign banks to lend considerably more to the country's agricultural sector under rules that apply to domestic banks.
India has just one branch of a foreign bank for every three million people and has allowed these branches to open only under pressure from the W.T.O. The branches are almost entirely in a few big cities like New Delhi and Mumbai.