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Many foreign banks remain unclear on how the wholly owned subsidiaries (WOS) route offered by the reserve

bank of India to them will play out as priority sector lending as well as setting up and operating rural branches
pose challenges, says a survey by PWC India.
According to the recently released WOS guidelines, foreign banks that choose to adopt the WOS model may
enter into mergers and acquisition with domestic private banks. However, this will be subject to regulatory
approvals necessary for the transaction, as well as assessment of the foreign lenders participation and success
in the banking space.
CHALLENGES FOR BANKS
Acquisition targets in India that are primarily promoter driven and command high valuation, may also pose
challenges for foreign banks. The lack of alignment of voting rights with shareholding was concern expressed by
many participants , the survey of 32 foreign banks said.
Further, given the current voting rights cap of 10 percent, immediate interest in inorganic growth (M&A) was
not as high as expected.
The new guidelines also allow foreign banks to open new branches, scale up their business in India and list on
ex-changes, subject to overall investment limit of74 percent. Further, the RBI has also mandated foreign banks
with more than 20 branches to meet the 40 percent priority sector norm, which is challenge for them.
According to PWC, compliance with capital requirements would also pose problem for foreign banks.
Shinjini Kumar, Leader, Banking and Capital Markets, PWC India said, As foreign banks seek greater clarity on
these option and admits the re-balancing of capital, trade ties and political ties within Asia, there is a possibility
of change in the landscape of foreign banks in India.
Foreign bank account for less than 1 percent (334 branches of 43 banks) on Indias total branch network, about
7 percent of the total banking sector assets and a sizeable 11 percent of profits. This data is as on March 2013.
Big foreign banks Standard Chartered, Citibank, HSBC and Barclays have India exposure of between 1 percent
and 5 percent their parents assets books and more than 20 branches of in India. For the remaining foreign
banks, their exposure is below 1 percent.
CHINA OVER INDIA
The survey highlighted that majority of foreign banks prefer China to India as the most attractive destination.
They cite Indias uncertain regulatory environment as a hindrances despite it being a large market for their
banks.
There was a sense of weariness about the tax regime. Refreshingly, most banks still seemed to have growth on
their minds as their hiring preference were in business lines and not in regulatory compliance, the trend across
the developed markets, Kumar said.