Private bank shares rally as RBI allows foreign banks' subsidiary to acquire private banks

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Private bank shares gain on foreign banks' guidelines
Karnataka Bank: Quotes, News
BSE 145.40BSE Quote1 (0.69%)
NSE 145.15NSE Quote0.75 (0.52%)
Lakshmi Vilas Bank: Quotes, News
BSE 176.35BSE Quote0.15 (0.09%)
NSE 176.65NSE Quote1 (0.57%)
Shares in private banks rallied after the RBI allowed foreign bank's subsidiary to acquire private banks. Shares of Karnataka Bank was up 4%, while South Indian Bank was up 3.23% and Lakshmi Vilas Bank gained 4.4%.

The Reserve Bank has allowed wholly-owned subsidiary (WOS) of foreign banks to acquire domestic private sector banks as well as set up branches anywhere in the country.

"As a locally incorporated bank, the WOSs will be given near national treatment which will enable them to open branches anywhere in the country at par with Indian banks (except in certain sensitive areas where the Reserve Bank's prior approval would be required)," the RBI guidelines said.

According to the RBI guidelines, foreign bank subsidiary will be allowed to hold upto 74 per cent, for overall foreign investment, in the private banks, with permission to list on local stock exchanges.

Moreover, as a part of safety measures to restrict the foreign banks domination on Indian Banking system, RBI will put a stop on further entry of new WOSs of foreign banks or capital infusion, when the capital and reserves of all foreign banks in India exceed 20 per cent of the capital and reserves of the entire banking system.

As per the guidelines, the initial minimum paid-up voting equity capital or net worth for a WOS would be Rs 500 crore. with inputs from Dion Global Solutions Ltd

Story first published: Thursday, November 7, 2013, 10:54 [IST]
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