Economy / Banking System In India / Foreign Banks: Subsidiary Vs Branch.
Foreign Banks: Subsidiary Vs Branch.
- Branch Office:
- Considered an extension of the parent company.
- Not an independent legal entity.
- Assets and liabilities are merged with the parent office.
- Subsidiary:
- Has a separate legal status.
- Involves Indian investment.
- Requires a separate management in India.
- Losses incurred by the parent cannot be offset by subsidiary's assets.
- Protects Indian capital and operations from external economic shocks.
- Can raise capital from the Indian share market as a separate entity.
Encouragement by RBI:
- RBI is encouraging foreign banks to become subsidiaries.
- Presently, most foreign banks operate as branches or representative offices of the parent.
Key Considerations:
- The choice between a branch and a subsidiary has implications for legal status, management structure, financial independence, and the ability to raise capital from the Indian market.
- The trend is moving towards encouraging foreign banks to adopt a subsidiary model to enhance local compliance and financial independence.
