Reserve Bank of India (Setting Up of Wholly Owned Subsidiaries by Foreign Banks) Guidelines, 2025 (Updated as on April 1, 2026)
UR
- Applies toForeign banks operating in India
- StatusIn force
- ImportanceFOR INFORMATION
- IssuedNovember 28, 2025
- Amendmentsnone tracked
- Length29 points in 4 sections · 3 min read
The four dates on this rule
- PublishedNovember 28, 2025The day RBI put this document out.
- Starts to applyNot statedNot stated separately in this document. Read the rule itself before you assume a start date.
- Time to get readyNot statedCannot be worked out until the day it starts to apply is known.
- Last date to actNot statedNo date to act by was found in this document. Other dates may sit inside single paragraphs.
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Numbers to remember
| ₹500 crore | A new bank subsidiary must start with at least ₹500 crore in paid-up capital. RBI Para 5(1) |
| three years | New subsidiaries must hold 10% capital adequacy for their first three years, higher than Basel III. RBI Para 5(3) |
| five years | Banks with under 20 branches get five years to meet priority lending sub-targets. RBI Para 11(2) |
| April 1, 2026 | This guideline's dividend rule reference was updated April 1, 2026, by a March 10, 2026 amendment. RBI Para 20(2) |
What it says
Must know
1. 20 percent system cap
New foreign bank subsidiaries face limits once foreign banks hold over 20% of banking system capital.
2. ₹500 crore capital floor
A new bank subsidiary must start with at least ₹500 crore in paid-up capital.
BankPulse example. A foreign bank plans a wholly owned subsidiary in India. The minimum paid-up voting equity capital is Rs 500 crore. A plan that opens with less than that cannot go ahead.
3. 10 percent capital adequacy
New subsidiaries must hold 10% capital adequacy for their first three years, higher than Basel III.
4. Core functions stay inside
Core management functions cannot be outsourced, not even to group entities in India or abroad.
5. Priority lending glide path
Banks with under 20 branches get five years to meet priority lending sub-targets.
6. Listing at 74 percent
Foreign bank subsidiaries may cut their stake to 74% and list on Indian exchanges.
7. April 2026 update
This guideline's dividend rule reference was updated April 1, 2026, by a March 10, 2026 amendment.
Do it
1. One mode of presence
A foreign bank must choose one mode of presence and stay with that single mode.
2. Subsidiary requirement
Some foreign banks must operate in India only as a wholly owned subsidiary, not a branch.
3. Convert branches to subsidiary
Such banks must convert their branches into a wholly owned subsidiary where paragraph 3 applies.
4. Home supervision test
A foreign bank seeking a subsidiary licence must show RBI it has strong supervision at home.
5. Make up the shortfall
If net worth on conversion falls below the minimum capital, the shortfall must be brought in upfront.
6. Basel III from entry
The subsidiary must meet Basel III requirements continuously from the time of entry or conversion.
7. Hold the buffers too
The subsidiary must also keep the capital conservation buffer and other applicable buffers.
8. Fit-and-proper board
Most board members must meet RBI's fit-and-proper rules under the Banking Regulation Act.
9. Non-executive majority
At least two-thirds of the board must be non-executive directors.
10. Independent directors third
At least one-third of directors must be independent of the bank's parent and management.
11. Indian nationals half
At least half the board must be Indian nationals, NRIs or PIOs.
12. Resident full-time CEO
The subsidiary's CEO must work full time and live in India.
13. Priority sector applies
The subsidiary must meet the priority sector lending requirements applicable to domestic commercial banks.
14. Arm's length with parent
The subsidiary must keep an arm's length relationship with the parent's group entities.
15. Modern systems required
The subsidiary must use modern equipment and telecommunications to give cost-effective customer service.
16. Apply in Form III
A foreign bank converting its Indian branches must apply in Form III under the Companies Rules.
17. Shareholders must approve
Shareholders of the Indian subsidiary must also approve the draft amalgamation scheme by resolution.
Background
1. Older entrants may choose
Foreign banks that began business in India before August 2010 may keep the branch mode.
2. Systemic importance test
A foreign bank branch counts as systemically important once assets reach 0.25% of total bank assets.
3. RBI decides group links
Where a group link is disputed, the decision of the Reserve Bank is final.
4. RBI fixes the date
Conversion takes effect from the date and on the conditions the Reserve Bank specifies by order.
5. Shares issued on merger
After the branches merge, the subsidiary must issue and allot shares to the entity concerned.