Setting Up of Wholly Owned Subsidiaries by Foreign Banks · RBI/DOR/2025-26/144

RBI/DOR/2025-26/144
November 28, 2025

Previous Versions

Reserve Bank of India (Setting Up of Wholly Owned Subsidiaries by Foreign Banks) Guidelines, 2025 (Updated as on April 1, 2026)

A. Background

The global financial crisis of 2008 demonstrated that the growing complexity and interconnectedness of financial institutions, coupled with the lack of effective cross-border resolution regimes, severely constrained the ability of home and host authorities to cope with the failure of too big to fail (TBTF) and too connected to fail (TCTF) institutions. Globally, several policy options have been proposed to address these challenges, including measures to contain the negative externalities arising out of size and interconnectedness, strengthening the capital and liquidity buffers, and enhancing the resolvability of such institutions. The lessons from the global financial crisis support the case for domestic incorporation of foreign banks. The main advantages of local incorporation include:

• Creation of separate legal entities with their own capital base and local board of directors;
• Clear delineation between the assets and liabilities of the domestic bank and those of its foreign parent, with ring fenced capital and assets within the host country;
• Clarity and certainty regarding the applicability of the laws of country of incorporation on the locally incorporated subsidiary;
• A locally incorporated bank has its own board of directors which are required to act in the best interests of the bank and safeguard the interests of depositors and creditors;
• Local incorporation provides effective control to the local regulators.

Accordingly, several jurisdictions require foreign banks to adopt local incorporation mainly for (i) protecting local retail depositors, (ii) easing the resolution process, and (iii) affording greater regulatory comfort.

In India, the Reserve Bank of India (RBI) allowed foreign banks, if eligible, to establish presence through a single mode i.e. either the branch mode or the wholly owned subsidiary (WOS) mode.

Explanation: As per the road map for presence of foreign banks in India, announced in 2005, new entrants could choose either the branch mode or a 100% wholly owned subsidiary (WOS), subject to the single -mode presence criterion. However, no foreign bank opted for 100 per cent owned subsidiary route.

Building on lessons learnt from the crisis, the RBI issued a Discussion Paper in January 2011 on the mode of presence of foreign banks in India. Based on the feedback received, the Scheme for setting up WOS by foreign banks in India has been finalised. It has been decided, as hitherto, to allow foreign banks to operate in India either through branch mode or through a wholly owned subsidiary (WOS) with near national treatment. The foreign banks have to choose one of the above two modes of presence and shall be governed by the principle of single mode of presence.

Accordingly, on November 06, 2013, the Reserve Bank, in exercise of its power under Section 35A read with Section 44A of the Banking Regulation Act, 1949, and in the public interest as well as in the interest of banking policy, issued a ‘Scheme for Setting up of Wholly Owned Subsidiaries (WOS) by foreign banks in India.

B. The Scheme

1. Branch mode or wholly owned subsidiary

(1) All foreign banks which are not carrying on banking business in India and which wish to do so in the future and to whom the matters referred to in paragraph 3 apply shall carry on banking business in India only through a wholly owned subsidiary.

(2) Foreign banks which are not carrying on banking business in India and which wish to do so in the future and to whom the matters referred to in paragraph 3 do not apply have the option to carry on banking business in India either through a wholly owned subsidiary or through the branch mode. If they choose to carry on banking business through the branch mode, and in case at a later date they come within the purview of paragraph 3, they shall convert their branches into WOS.

(3) Foreign banks which commenced banking business in India from August 2010 onwards were required to furnish an undertaking that they would convert their branches into wholly owned subsidiaries if so, required by RBI. Accordingly, such banks shall convert their branches into a wholly owned subsidiary if the matters specified in paragraph 3 apply to them.

(4) Foreign banks which commenced banking business in India before August 2010 shall have the option either to continue their banking business through the branch mode or to convert those branches into a wholly owned subsidiary.

(5) The branch expansion of both the existing foreign banks and the new entrants present in the branch mode would be subject to India’s WTO commitments.

(6) In respect of foreign banks which are presently carrying on banking business in India, and which are required to convert their branches into a wholly owned subsidiary or opt to do so, the conversion shall only be in accordance with a scheme mandated in the public interest to be approved by RBI under Section 44A of the Banking Regulation Act 1949 and which is in accordance with the conditions specified in paragraph 19.

2. Eligibility for setting up a wholly owned subsidiary

(1) Setting up of WOS by a foreign bank in India should have the approval of the home country regulator/supervisor.

(2) A foreign bank applying for setting up a WOS in India must satisfy RBI that it is subject to adequate prudential supervision as per internationally accepted standards, which includes consolidated supervision in its home country.

(3) The factors taken into account, while considering applications for setting up WOS in India would include the following:

• Economic and political relations with the country of incorporation of the parent bank,
• Reciprocity with home country of the parent bank,
• Financial soundness,
• Ownership pattern,
• International and home country ranking of the parent bank by a reputed agency,
• Home country/parent bank rating by a rating agency of international repute such as Moody Investors Service, Standard & Poor’s and Fitch Ratings,
• International presence of the bank,
• Adequate risk management and internal control systems.

These criteria represent the minimum that an applicant will need to meet for applying to RBI for granting a licence under Section 22 of the Banking Regulation Act, 1949 (to set up a bank as a WOS of the parent bank) and is not an exhaustive list. The final decision to grant licence will be that of RBI.

3. Conditions requiring presence as WOS only

(1) Foreign banks which have commenced banking business in India after August 2010 or foreign banks which are not at present carrying on banking business in India but wish to do so in the future shall carry on banking business in India only through a wholly owned subsidiary, if any of the matters as described hereunder are applicable:

• Banks incorporated in a jurisdiction having legislation giving a preferential claim to deposits of home country in a winding up proceedings;
• Banks that do not have adequate disclosure requirements in their home jurisdiction;
• Banks with complex structures;
• Banks which are not widely held;
• Reserve Bank of India is not satisfied with the adequacy of supervisory arrangements (including disclosure arrangements) and market discipline in the country of their incorporation; and
• For any other reason that the Reserve Bank of India considers necessary for subsidiary form of presence of the bank; or