Banking · Licensing of Banking Companies
'Globex Bank,' a major international bank operating through a branch network in India, is approaching the statutory period for the renewal of its license to operate in India. Globex Bank is also considering converting its existing branch model into a Wholly Owned Subsidiary (WOS) model to benefit from the greater autonomy allowed by the RBI. Which statement accurately reflects the applicability of Section 22 of the BR Act, 1949, and the implications of the WOS structure?
- 1The license granted to a foreign bank under Section 22 is for an indefinite period and does not require periodic renewal. The WOS model is a regulatory exemption that allows the foreign parent bank to bypass the need for a separate license.
- 2Section 22 is relevant only for the initial application, not for renewal. The conversion to a WOS model would require a license under Section 28 of the BR Act, 1949, which specifically deals with subsidiaries of foreign banks.
- 3Section 22 applies to both Indian and foreign banks. For a foreign bank operating as a branch, the license is granted to the foreign bank itself. If it converts to a WOS, the WOS must obtain a fresh license under Section 22, as it becomes a separate banking company incorporated in India.✓
- 4Section 22 of the BR Act, 1949, is applicable only to banks incorporated in India, and hence, Globex Bank, being a foreign entity, is exempt from its provisions but must comply with the RBI Act, 1934.
Correct answer
Section 22 applies to both Indian and foreign banks. For a foreign bank operating as a branch, the license is granted to the foreign bank itself. If it converts to a WOS, the WOS must obtain a fresh license under Section 22, as it becomes a separate banking company incorporated in India.
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