With reference to the rule/rules imposed by the Reserve Bank of India while treating foreign banks, consider the following statements: 1. There is no minimum capital requirement for wholly owned banking subsidiaries in India. 2. For wholly owned banking subsidiaries in India, at least 50% of the board members should be Indian nationals. Which of the statements given above is/are correct?

1. A. 1 only
2. B. 2 only
3. C. Both 1 and 2
4. D. Neither 1 nor 2

Answer: B

Explanation

Let’s examine the statements regarding foreign banks operating as Wholly Owned Subsidiaries (WOS) in India under RBI regulations: 1. Statement 1 is incorrect: The Reserve Bank of India (RBI) mandates an initial minimum paid-up voting equity capital of ₹5 billion for a WOS of a foreign bank in India. This capital must be brought in upfront from the parent entity. 2. Statement 2 is correct: RBI guidelines stipulate that for WOS of foreign banks, not less than 51% of the total number of members on the board of directors must consist of persons as defined under Section 10A of the Banking Regulation Act, 1949. This section generally refers to individuals with professional experience and who are not employees of the bank or its subsidiaries, effectively ensuring a significant presence of independent Indian nationals. Therefore, only statement 2 is correct. This question pertains to banking sector regulations and foreign investment policies, which are important aspects of the Indian Economy syllabus.