Subsidiarisation of foreign banks, a proposal which these banks have long resisted despite RBI?s insistence, may get delayed further. The government has decided to introduce the enabling provision through legislation rather than by way of an executive order.
Official sources say the finance ministry has decided to bring in the provision through the Banking Laws (Amendment) Bill. The Bill was to be introduced in the Monsoon Session of Parliament. However, it is now expected to come up only in the Winter Session.
Earlier, the government was planning to see through the process of foreign banks converting their branches into subsidiaries with just a notification by the Central Board of Direct Taxes (CBDT) to that effect. The process has been incentivised by making it tax neutral ? foreign banks need not pay any taxes/duty (capital gains tax as well as stamp duty) on the transfer of assets to the newly formed subsidiaries.
The government and RBI had insisted on these banks converting their branches in India into subsidiaries to insulate the entities operating from India from failures of the parent entity, adversely affecting Indian depositors. These fears stem from the experience of other countries in the aftermath of the global financial crisis.
As a sweetener, RBI had even assured the banks a larger role in the country if they operated as subsidiaries. But foreign banks are wary of huge tax liabilities (estimated at around a third of the market value of their assets) arising out of this process.
Though there has been some opposition on the revenue losses to the government on account of the exemption given to these banks for conversion, sources said, adding, this is purely notional. ?There would be no taxes if they were not told to subsidiarise their branches,? the official said.
On the stamp duty exemption, sources clarified that the matter is under the concurrent list of the Constitution (and not the state list) and, therefore, the Centre has the power to grant such an exemption. ?The debate (whether it is part of the state or concurrent list) on this matter went up to the the level of the attorney general and it has been concluded that the Centre can give such an exemption,? the official said.
