FDI through Indian Entry by Setting up a Wholly Owned Subsidiary (WOS) after RBI new Rule 2025

FDI through Indian Entry by Setting up a Wholly Owned Subsidiary (WOS) after RBI new Rule 2025. Setting up of Wholly Owned Subsidiaries (WOS) by foreign banks in India.
The global financial crisis of 2008 showed that very large banks or banks closely linked with other financial institutions can cause serious problems if they fail. Such banks are often described as “too big to fail” or “too connected to fail.” When these banks collapse, regulators find it difficult to protect depositors and maintain financial stability, especially when banks operate across borders.
To reduce these risks, regulators across the world started encouraging local incorporation of foreign banks. This means that instead of operating only as branches, foreign banks should set up a separate company in the host country, allow regulators to exercise better control and ensures that local depositors are protected.
The concepts of Too Big To Fail (TBTF) and Too Connected To Fail (TCTF) gained global regulatory attention after the 2008 financial crisis, when the failure of large financial institutions posed systemic risks far beyond their individual balance sheets. An institution is considered Too Big To Fail when its size, market dominance, or balance sheet exposure is so large that its failure could seriously disrupt the financial system and broader economy and Too Connected To Fail refers to institutions whose interlinkages and interconnectedness make their failure systemically dangerous, even if they are not the largest by size.
In India, the Reserve Bank of India (RBI) allows foreign banks to operate through only one mode of presence. A foreign bank can either:

operate through branches, or

set up a Wholly Owned Subsidiary (WOS) in India.

This is known as the single-mode presence rule. A bank cannot operate through both modes at the same time.Initially, foreign banks preferred the branch route. However, after reviewing global developments and regulatory risks, RBI introduced a structured framework for setting up WOS in India.
India’s insistence on local incorporation of foreign banks through Wholly Owned Subsidiaries (WOS) is directly linked to TBTF and TCTF concerns.
Local incorporation:

Creates a separate legal entity with ring-fenced capital

Limits contagion from the foreign parent

Allows RBI to exercise effective supervisory and resolution control

Protects Indian depositors and financial stability

By moving away from complex branch structures toward WOS, regulators aim to ensure that no foreign bank operating in India becomes unmanageable due to size or interconnectedness.
What Is a Wholly Owned Subsidiary (WOS)?
A WOS is an Indian company that is:

fully owned by the foreign bank,

incorporated under the Companies Act, 2013,

licensed by RBI under the Banking Regulation Act, 1949.

Even though it is owned by a foreign bank, a WOS is treated as a separate legal entity in India under Companies Act 2013, with its own capital, board of directors, and management.
Conditions Where a Foreign Bank Must Operate Only Through a WOS
Under the RBI Structure, certain situations require foreign banks to operate in India only through a Wholly Owned Subsidiary (WOS) and not through the branch mode.
Mandatory WOS Requirement for New and Recent Entrants 2025
Foreign banks that:

started banking operations in India after August 2010, or

are not currently operating in India but plan to enter the Indian market,

will be required to carry on banking business only through a Wholly Owned Subsidiary (WOS) if any of the following conditions apply.
Situations Triggering Mandatory WOS Presence
A WOS becomes compulsory where the foreign bank:

is incorporated in a country whose laws give preferential treatment to domestic depositors over foreign depositors during liquidation or winding-up proceedings;

operates from a jurisdiction that does not have adequate disclosure standards, making regulatory supervision difficult;

has a complex ownership or organisational structure that may obscure risk assessment;

is not widely held, meaning ownership is concentrated among a limited group of shareholders;

is based in a country where the RBI is not satisfied with the quality of banking supervision, disclosure practices, or market discipline exercised by the home regulator; or

falls under any other category where the RBI considers a subsidiary form of presence necessary in the interest of financial stability or effective regulation.

In all such cases, the RBI requires the bank to operate through a locally incorporated subsidiary rather than branches.
Systemically Important Foreign Banks in Branch Mode
Even where a foreign bank has entered India through the branch mode after August 2010, the RBI may still require conversion into a WOS if the bank becomes systemically important in India. A foreign bank operating through branches is considered systemically important when its total assets in India (including both on-balance-sheet assets and the credit-equivalent value of off-balance-sheet exposures) reach 0.25% or more of the total assets of all scheduled commercial banks in India, calculated as of March 31 of the preceding financial year.
For this purpose, the RBI provides consolidated data on off-balance-sheet exposures for the banking sector.
Statutory & regulatory

A Wholly Owned Subsidiary (WOS) of a foreign bank shall be regulated under all applicable Indian laws, including the Companies Act, 2013, the Banking Regulation Act, 1949, the Reserve Bank of India Act, 1934, the Foreign Exchange Management Act, 1999, and the Payment and Settlement Systems Act, 2007, along with all prudential norms, directions, and guidelines issued by the RBI and other regulators from time to time.

Where the foreign bank’s parent or group has NBFCs operating in India, the WOS will also be subject to consolidated prudential reporting and supervision, in line with the regulatory structure applicable to branches of foreign banks.

Further, if any deficiencies are identified in Know Your Customer (KYC), Anti-Money Laundering (AML), or Combating the Financing of Terrorism (CFT) standards in any jurisdiction or bank, entities from such jurisdictions may be subjected to enhanced prudential requirements by the RBI.

RBI/DOR/2025-26/144 November 28, 2025

Setting up of Wholly Owned Subsidiaries (WOS) by foreign banks in India.

The global financial crisis of 2008 showed that very large banks or banks closely linked with other financial institutions can cause serious problems if they fail. Such banks are often described as “too big to fail” or “too connected to fail.” When these banks collapse, regulators find it difficult to protect depositors and maintain financial stability, especially when banks operate across borders.

To reduce these risks, regulators across the world started encouraging local incorporation of foreign banks. This means that instead of operating only as branches, foreign banks should set up a separate company in the host country, allow regulators to exercise better control and ensures that local depositors are protected.

The concepts of Too Big To Fail (TBTF) and Too Connected To Fail (TCTF) gained global regulatory attention after the 2008 financial crisis, when the failure of large financial institutions posed systemic risks far beyond their individual balance sheets. An institution is considered Too Big To Fail when its size, market dominance, or balance sheet exposure is so large that its failure could seriously disrupt the financial system and broader economy and Too Connected To Fail refers to institutions whose interlinkages and interconnectedness make their failure systemically dangerous, even if they are not the largest by size.

In India, the Reserve Bank of India (RBI) allows foreign banks to operate through only one mode of presence. A foreign bank can either:

operate through branches, or
set up a Wholly Owned Subsidiary (WOS) in India.

India’s insistence on local incorporation of foreign banks through Wholly Owned Subsidiaries (WOS) is directly linked to TBTF and TCTF concerns.

Local incorporation:

Creates a separate legal entity with ring-fenced capital
Limits contagion from the foreign parent
Allows RBI to exercise effective supervisory and resolution control
Protects Indian depositors and financial stability

By moving away from complex branch structures toward WOS, regulators aim to ensure that no foreign bank operating in India becomes unmanageable due to size or interconnectedness.

What Is a Wholly Owned Subsidiary (WOS)?

A WOS is an Indian company that is:

fully owned by the foreign bank,
incorporated under the Companies Act, 2013,
licensed by RBI under the Banking Regulation Act, 1949.

Even though it is owned by a foreign bank, a WOS is treated as a separate legal entity in India under Companies Act 2013, with its own capital, board of directors, and management.

Conditions Where a Foreign Bank Must Operate Only Through a WOS

Under the RBI Structure, certain situations require foreign banks to operate in India only through a Wholly Owned Subsidiary (WOS) and not through the branch mode.

Mandatory WOS Requirement for New and Recent Entrants 2025

Foreign banks that:

started banking operations in India after August 2010, or
are not currently operating in India but plan to enter the Indian market,

will be required to carry on banking business only through a Wholly Owned Subsidiary (WOS) if any of the following conditions apply.

Situations Triggering Mandatory WOS Presence

A WOS becomes compulsory where the foreign bank:

is incorporated in a country whose laws give preferential treatment to domestic depositors over foreign depositors during liquidation or winding-up proceedings;
operates from a jurisdiction that does not have adequate disclosure standards, making regulatory supervision difficult;
has a complex ownership or organisational structure that may obscure risk assessment;
is not widely held, meaning ownership is concentrated among a limited group of shareholders;
is based in a country where the RBI is not satisfied with the quality of banking supervision, disclosure practices, or market discipline exercised by the home regulator; or
falls under any other category where the RBI considers a subsidiary form of presence necessary in the interest of financial stability or effective regulation.

In all such cases, the RBI requires the bank to operate through a locally incorporated subsidiary rather than branches.

Systemically Important Foreign Banks in Branch Mode

Even where a foreign bank has entered India through the branch mode after August 2010, the RBI may still require conversion into a WOS if the bank becomes systemically important in India. A foreign bank operating through branches is considered systemically important when its total assets in India (including both on-balance-sheet assets and the credit-equivalent value of off-balance-sheet exposures) reach 0.25% or more of the total assets of all scheduled commercial banks in India, calculated as of March 31 of the preceding financial year.

For this purpose, the RBI provides consolidated data on off-balance-sheet exposures for the banking sector.

Statutory & regulatory

A Wholly Owned Subsidiary (WOS) of a foreign bank shall be regulated under all applicable Indian laws, including the Companies Act, 2013, the Banking Regulation Act, 1949, the Reserve Bank of India Act, 1934, the Foreign Exchange Management Act, 1999, and the Payment and Settlement Systems Act, 2007, along with all prudential norms, directions, and guidelines issued by the RBI and other regulators from time to time.

Where the foreign bank’s parent or group has NBFCs operating in India, the WOS will also be subject to consolidated prudential reporting and supervision, in line with the regulatory structure applicable to branches of foreign banks.

Further, if any deficiencies are identified in Know Your Customer (KYC), Anti-Money Laundering (AML), or Combating the Financing of Terrorism (CFT) standards in any jurisdiction or bank, entities from such jurisdictions may be subjected to enhanced prudential requirements by the RBI.

RBI/DOR/2025-26/144 November 28, 2025