What changed
RBI clarified that foreign branches and subsidiaries of Indian banks are subject to Indian statutory and regulatory prohibitions, but may need RBI permission if host-country rules require activities not permitted under Indian law. For plain-vanilla financial products not available in India, no prior RBI approval is needed, but structured products require prior approval.
What it means for you
Banks must navigate dual regulatory compliance—host-country and Indian—when operating abroad. They can offer plain-vanilla foreign products without RBI pre-clearance, but must have robust risk management and reporting. Structured products require RBI approval with full details. This impacts capital adequacy, credit exposure, and valuation norms.
What you must do
- Review foreign branch and subsidiary activities for compliance with Indian banking laws and seek RBI permission under Section 6(1)(m) or 19(1)(c) if host-country rules require non-permitted activities.
- For plain-vanilla financial products not available in India, ensure adequate knowledge, risk management, and reporting in off-site returns; apply all prudential norms.
- For structured financial products, obtain prior RBI approval with full particulars including host-country regulatory treatment and risk management systems.
- If current RBI norms do not specify prudential treatment for a product, seek specific RBI guidance.
Who it affects
All scheduled commercial banks with foreign branches or subsidiaries, Risk management and compliance teams of Indian banks, Regulatory reporting departments
Do we need RBI approval for every new product offered by our foreign branch?
No. Plain-vanilla financial products not available in India and not specifically prohibited by RBI do not need prior approval, provided you have adequate risk management and reporting. Structured products, however, require prior RBI approval with full details.
What if our foreign branch must follow a host-country rule that conflicts with Indian banking law?
You must obtain necessary permission from RBI or Government of India under Section 6(1)(m) or 19(1)(c) of the Banking Regulation Act before undertaking such activities.
How should we report these foreign products to RBI?
All such products must be appropriately captured and reported in the extant off-site returns furnished to RBI, and must comply with prudential norms like capital adequacy and credit exposure.