RBI allowed bank branches abroad to sell structured products

The Reserve Bank of India (RBI) on 12 May 2014 notified that foreign branches or subsidiaries of Indian banks are allowed to offer structured financial and derivative products that are not specifically permitted by it in the domestic market.

These activities are permitted only at the established financial centers outside India like New York, London, Singapore, Hong Kong, Frankfurt, Dubai and others.

It also notified to the banks dealing with such products will have to ensure that their foreign branches or subsidiaries that will deal with these products in foreign jurisdiction have an adequate knowledge, understanding, and risk management capability for handling such products. At other centers, banks may offer only those products that are specifically permitted in India.

In its notification, RBI also asked the Indian banks with branches and subsidiaries in foreign countries to make sure that the products being provided in overseas location should be in compliance with host country regulations, with prior approval from their Board and appropriate authority in these foreign jurisdictions.

In its notification, RBI has also asked the banks to get necessary permission under Section 6(1)(m) or 19 (1)(c) of the Banking Regulations Act 1949 (depending on the case) from the RBI or Government of India which are not permitted under the Banking Regulations Act, 1949 / respective Statute of the Public Sector Banks

By easing the norms for functioning of overseas branches of Indian Bank, the RBI has revised the rules passed on 1 December 2008 that mandated domestic lenders to consult with RBI before offering complex derivative products, which are not allowed at home to overseas customers.

The step of RBI to allow domestic banks to offer structure derivatives through overseas branches is a move that would help in improvement of their income.