country – easier to define laws of which jurisdiction apply – better corporate governance, local board of directors – effective control in a banking crisis and enables host country authorities to act more independently as against branch operations – regulatory comfort • potential down side risk could be domination of the domestic financial system by wholly owned subsidiaries ( wos ) of foreign banks. • there were certain taxation and other issues which needed to be resolved in consultation with govt. of india. the income tax act has since been amended to exempt foreign bank from payment of capital gains tax on subsidiarisation. the banking laws ( amendment ) bill, 2012 amended the indian stamp act, 1899 whereby conversion of branch / es of a foreign bank into wos as per the scheme or guidelines of rbi shall not be liable to duty under the indian stamp act, 1899 or any other law for the time being in force. • apart from taxation issues, there are a few other important issues in conversion of foreign bank branches into wholly owned subsidiaries, mainly of a legal nature, like transfer of rights and liabilities, finality of transfer, etc. which need to be addressed. these issues are under examination of the reserve bank. after resolution of all these issues comprehensive guidelines on subsidiarisation of foreign banks in india will be issued. conclusion • i have raised some issues relevant in the context of thinking through a banking structure for india that best promotes our aspiration for fast and inclusive growth. • i am conscious i raised issues without necessarily giving the reserve bank ’ s views. that is deliberate. the reserve bank needs the benefit of larger and informed debate on these issues. • i trust you will engage on these issues when the reserve bank ’ s discussion paper comes out in a few days. • my best wishes for the success of this conference. • thank you once again for inviting me. bis central bankers ’ speeches annex indicators of impact of financial sector reforms bis central bankers ’ speeches

##imum funds management, consolidation of operations, savings in it and other purchases. • consolidation will afford focused supervision. • larger size means wider and richer experience in financial inclusion. possible to bring larger collective experience to identify successful models. • international acceptance and recognition. • better risk management. arguments against consolidation • lead to complexity and too - big - to - fail ( tbtf ) or too - connected - to - fail ( tctf ) moral hazards with adverse impact on financial stability. • regulatory issues : significant big banks could resort to monopolistic practices that may result in unequal competition and distortive and even predatory behaviour in the market. such practices could also blunt the monetary transmission and market mechanism for efficient allocation of resources. • could pose problems such as technology migration issues, customer attrition, implementation costs, hr issues ( viz. seniority, salary, transfers, promotion, parity in perks etc. ) and litigation, will not be able to provide personalized services provided by small banks. criteria for consolidation / merger • presently, significant skewness in the size of banks. the second largest bank in the system is almost one - third the size of the biggest bank. this creates a monopolistic situation. the task is to ensure that there are at least 4 – 5 banks of comparable size at all times to ensure that consolidated banks do not acquire monopolistic market power, adopt predatory behaviour and force smaller banks into unviable models. • organic merger or inorganic merger? issue no. 3 : large and small banks an issue related to the debate on consolidation in banking sector is the merits and demerits of large and small banks. in support of large banks • large banks can exploit economies of scale and scope leading to economic efficiency. • large banks will have the capacity, resilience and innovative zeal to pursue financial inclusion. they will bring diverse experience to bear on local initiatives. • large banks can potentially become significant global players and thereby give a global reach to indian corporates. • large banks with huge capital base can better meet the huge funding requirements of the infrastructure sectors. bis central bankers ’ speeches against large banks • large banks can become too - big - to fail, leading to moral hazard problems. • proliferation of non - core activities, either in the books of the bank or through offbalance sheet vehicles such as investment banking, securitisation, derivatives trading, etc. could pose significant systemic risk because of their complexity and opacity