New Indian bank rules may find few takers

India's move to encourage foreign banks such as Citigroup and HSBC to reposition as wholly owned subsidiaries may find just a handful of takers, given the regulatory trade-off.

Under central bank rules announced last week, foreign banks that convert their local operations from a branch structure to being subsidiaries will be treated on nearly equal terms with local lenders.

This could open the way to them opening more outlets across India and allow them to acquire local private-sector banks - potentially a major lure as foreign banks seek to tap into the fast-growing Indian economy.

The rules are aimed at giving India greater regulatory power over foreign banks in the wake of the global financial crisis.

Yet foreign banks would also face a bigger regulatory burden in the subsidiary set-up, including having to earmark 40 per cent of their lending to the "priority sector", which includes underserved parts of the economy and agriculture.

That's a requirement that domestic banks must already meet and is being phased in for foreign banks with 20 or more branches.