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

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

Correct Answer: (b) 2 only

Statement 1: Incorrect. There is a minimum capital requirement for wholly owned banking subsidiaries (WOS) in India. The initial minimum paid-up voting equity capital for a WOS is ₹5 billion.
Statement 2: Correct. For wholly owned banking subsidiaries in India, at least 50% of the board members should be Indian nationals.

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Minimum Capital Requirement:
- The Reserve Bank of India (RBI) mandates that the initial minimum paid-up voting equity capital for a wholly owned subsidiary (WOS) of a foreign bank in India is ₹5 billion.
- This capital must be brought in upfront and funded by free foreign exchange remittance from the parent bank .
Board Member Nationality Requirements:
- At least 50% of the directors of a WOS must be Indian nationals.
- Additionally, not less than 50% of the directors should be non-executive directors, and a minimum of one-third of the directors should be independent of the management of the subsidiary in India, its parent, or associates .
Corporate Governance:
- The WOS must comply with the corporate governance norms set by the RBI, which include having a majority of independent directors on the board.
- The directors must conform to the ‘Fit and Proper’ criteria as laid down in RBI’s guidelines.
Regulatory Compliance:
- The WOS will be subject to the licensing requirements and conditions consistent with those for new private sector banks.
- It will be governed by the provisions of the Companies Act, 1956, Banking Regulation Act, 1949, Reserve Bank of India Act, 1934, and other relevant statutes and directives issued by the RBI.
Branch Expansion:
- The branch expansion guidelines applicable to domestic scheduled commercial banks will generally apply to WOSs of foreign banks.
- However, they will require the RBI’s prior approval for opening branches at certain locations sensitive from the perspective of national security.
Priority Sector Lending:
- WOSs are required to meet the priority sector lending targets similar to those applicable to domestic scheduled commercial banks, with an adequate transition period for existing foreign bank branches converting into WOS.