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RBI paper on foreign banks in India

India Infoline News Service / 17:23 , Jan 22, 2011

This discussion paper gives broad contours of the proposed policy on the mode of presence of foreign banks in India

The Reserve Bank of India released on its website today, the Discussion Paper on Presence of Foreign Banks in India

1. Introduction

1.1 In 2005, the Reserve Bank released the Road map for presence of foreign banks in India laying out a two track and gradualist approach aimed at increasing the efficiency and stability of the banking sector in India. One track was the consolidation of the domestic banking system, both in private and public sectors, and the second track was the gradual enhancement of foreign banks in a synchronised manner.

The Road map was divided into two phases, the first phase spanning the period March 2005 March 2009, and the second phase beginning after a review of the experience gained in the first phase. However, when the time came to review the experience gained in the first phase, global financial markets were in turmoil and there were uncertainties surrounding the financial strength of banks around the world. At that time it was considered advisable to continue with the current policy and procedures governing the presence of foreign banks in India.

1.2 Governor on April 20, 2010, in his Annual Policy Statement for 2010-2011 indicated that while global financial markets have been improving, various international fora have been engaged in setting out policy frameworks incorporating the lessons learnt from the crisis. Furthermore, there was a realisation that as international agreement on cross-border resolution mechanism for internationally active banks was not likely to be reached in the near future, there

was considerable merit in subsidiarisation of significant cross-border presence. Apart from easing the resolution process, this would also provide greater regulatory control and comfort to the host jurisdictions. In the Policy Statement it was announced Drawing lessons from the crisis, it is proposed to prepare a discussion paper on the mode of presence of foreign banks through branch or WOS by September 2010 (paragraph 100).

1.3 Accordingly, this discussion paper on the form of presence of foreign banks in India has been prepared taking into account, inter-alia, the lessons learnt from the recent global financial crisis and the practices followed in other countries. Based on the feedback received on the approach outlined in the discussion paper, the Reserve Bank will frame detailed guidelines on the presence of foreign banks in India.

2. Existing framework

The road map unveiled in 2005 comprised two phases Phase I (March 2005 to March 2009) and Phase II (April 2009 onwards).

A copy of the Roadmap for presence of foreign banks in India released with the Press Release dated February 28, 2005 is attached as Annex 1.

During the first phase, foreign banks were permitted to establish presence by way of setting up a wholly owned banking subsidiary (WOS) or conversion of the existing branches into a WOS. The guidelines covered, inter alia, the eligibility criteria of the applicant foreign banks such as ownership pattern, financial soundness, supervisory rating and the international ranking. The WOS was to have a minimum capital requirement of Rs. 300 crore i.e. Rs. 3 billion and would need to ensure sound corporate governance.

The WOS was to be treated on par with the existing

branches of foreign banks for branch expansion with flexibility to go beyond the existing WTO commitments of 12 branches in a year and preference for branch expansion in under-banked areas. The Reserve Bank had indicated that it may also prescribe market access and national treatment limitation consistent with WTO as also other appropriate limitations to the operations of WOS, consistent with international practices and the countrys requirements.

3. Branches vs Subsidiaries

3.1 Regulatory control perspective

3.1.1 Recent global financial crisis have brought out that (a) complex structures (b) too big to fail (TBTF) and (c) too connected to fail (TCTF) have exacerbated the crisis. The post-crisis lessons support domestic incorporation of foreign banks i.e. subsidiarisation.

3.1.2 Branches are not separate legal entities whereas subsidiaries are locally incorporated separate legal entities. Subsidiaries being locally incorporated have their own capital base and their own local board of directors. In the case of branches, parent banks are, in principle, responsible for their liabilities.

3.1.3 The main benefits associated with branches are (i) greater operational flexibility, (ii) increased lending capacity (loan size limits based on the parent banks capital) and (iii) reduced corporate governance requirements. Branches are generally not allowed to take retail deposits or enjoy deposit insurance. (The position in this regard in some countries is given in the Annex 2). While the branch form of presence can have its own advantages such as stronger support from the parent could be forthcoming in situations of local adversity of the branch, internationally it is generally understood that with a branch it may be difficult to determine the assets that would be available in the event of failure of the bank to satisfy local creditors claims and the local liabilities that can be attributed to the branch.

As branches are part of the head office, assets attributable to it can easily be transferred by the branch to the foreign head office. Further the management of a branch does not have a fiduciary responsibility to the branchs local clients. In fair weather it may not be of much relevance but in times of crisis, the distinction between the branch and the rest of the bank, and the legal location of assets and liabilities, may well become very important.

3.1.4 Cross Border Resolution Issues with branches

Insolvency procedures may differ by the approach taken by each country. Some countries follow a separate-entity doctrine and thus are able to place their depositors and creditors before those of other countries. For example, Australia and USA have enacted rules under which home country depositors or creditors are senior claimants over depositors from branches located overseas during bankruptcy proceedings. Other countries follow singleentity doctrine and consider a bank and its foreign branches as a whole and give an equal treatment to all creditors irrespective of domicile unlike Canadian and American legislations that allow the authorities to separate the branch from its parent and use the assets to cover the liabilities under the host country regulations. During liquidation of a foreign banks branch, US authorities can collect all the assets of the foreign bank in their jurisdiction, even when those assets do not belong to the branch; hence, more assets will be available to reimburse the claimants of an ailing foreign banks branch. Moreover, in the case of a bank failure the FDIC is authorized to bill the cost of the failure to affiliate or sister banks.

In order to overcome these limitations the Cross Border Bank Resolution Group (CBRG) of BCBS has come out with its recommendations based on the lessons from the crisis, delineating two approaches viz. ring fencing or territorial approach and universal approach. The CBRG recommends a middle ground approach that recognises strong possibility of ring-fencing in a crisis. This approach entails certain changes to national laws and resolution frameworks. An

alternative approach would be establishing a universal framework for the resolution of cross border financial groups, which puts all creditors on same footing. Though some jurisdictions including India stipulate locally assigned capital for branch mode of presence which serves the purpose of ring fencing, setting up subsidiaries clearly provides for ring fenced capital within the country.

3.1.5 In view of the above mentioned facts a number of jurisdictions therefore impose a local incorporation requirement for foreign banks mainly for two reasons (i) to protect retail depositors and (ii) to limit operations of systemically important banks.

3.1.6 In general, following are the main advantages of local incorporation:

(i) it ensures that there is a clear delineation between the assets and liabilities of the domestic bank and those of its foreign parent and clearly provides for ring fenced capital within the host country.

(ii) it is easier to define laws of which jurisdiction applies since laws characterize a subsidiary as a locally incorporated entity with its own capital.

(iii) a locally incorporated bank has its own board of directors and these directors are required to act in the best interests of the bank, to prevent the bank from carrying on business in a manner likely to create a substantial risk of serious loss to the banks creditors.

(iv) local incorporation provides more effective control in a banking crisis and enables the host country authorities to act more independently as against branch operations.

3.1.7 It must however be recognised that setting up of subsidiaries does not necessarily ensure support from the

parent bank in all weathers. International experience has shown that comfort letters provided by the holding companies is not a source of strength as their enforceability in times of stress is very often questioned. In fact numerous examples can be cited from the Argentine crisis and banks such as from Malaysia which abandoned their subsidiaries when faced with a crisis. Similarly holding companies are not necessarily a source of support to their subsidiaries in certain circumstances. The insolvency of a parent or ring fencing of liquidity by parents home country regulator can have same effect on subsidiaries as well as branches. In many instances international groups manage liquidity centrally and place it with various subsidiaries on a shortterm basis and in such cases the failure of parent necessarily may result in the immediate failure of the subsidiary.

3.1.8 A down side risk with subsidiaries may arise from financial stability perspective if they come to dominate the domestic financial system due to their being locally incorporated entities. It has come to the fore that subsidiaries promoted by foreign banks, where they had large presence, had not only acquired large share at the expense of domestic banks in the boom years but when the home countries were afflicted they had tended to substantially curtail their operations in or withdraw from the host country. Indian experience in this regard even with branch mode of presence has been no exception as the foreign banks had withdrawn substantially from the credit markets in India to the extent that y-o-y growth of credit was -7.1% (as on July 3, 2009) and -15.9% (as on October 9, 2009). However, through prudential measures, like limiting the size of the foreign bank branches and subsidiaries, it can be ensured that the domestic financial system is not dominated by foreign banks.

3.1.9. On balance however weighing the pros and cons of the branch form of presence against the subsidiary form of foreign banks, the advantages in WOS outweigh downside risks. In the light of experience gained, particularly, in the recent global crisis, subsidiary form of presence appears to be a preferred mode for the presence of foreign banks. The regulatory comfort that local incorporation of WOS provides as compared to the branches of foreign banks would also

justify a preference for WOS.

4. Proposed Framework for Presence of foreign banks in India

4.1 There are currently 34 foreign banks operating in India as branches. Their balance sheet assets, accounted for about 7.65 percent of the total assets of the scheduled commercial banks as on March 31, 2010 as against 9.03 per cent as on March 31, 2009. In case, the credit equivalent of off balance sheet assets are included, the share of foreign banks was 10.52 per cent of the total assets of the scheduled commercial banks as on March 31, 2010, out of this, the share of top five foreign banks alone was 7.12 per cent.

4.2. The policy on presence of foreign banks in India has followed two cardinal principles of (i) Reciprocity and (ii) Single Mode of Presence. These principles are independent of the form of presence of foreign banks. Therefore, these principles should continue to guide the framework of the future policy on presence of foreign banks in India.

4.3 Following factors seem relevant for any framework for future policy on presence of foreign banks in India:

Prima facie the branch mode of presence of foreign banks in India provides a ring-fenced structure as there is a requirement of locally assigned capital and capital adequacy requirement as per Basel Standards. Certain provisions of the BR Act1 also delineate the separate legal identity of branches of foreign banks in India. Further, under section 584 of the Companies Act, though the company incorporated outside India is dissolved, if it has ceased to carry on the business in India, it may be wound up as an unregistered company. However, except for the assets specifically ringfenced under Section 11(4) of the BR Act, the claim of domestic depositors and creditors over other assets is yet to be legally tested.

Keeping the above in view, on balance, the subsidiary model has clear advantages over the branch model despite certain downside risks. However, under the extant policy as laid down in 2005 Roadmap, no foreign bank has approached RBI, for setting up a subsidiary, may be due to lack of incentives. Hence there may be a need to incentivise subsidiary form of presence of foreign banks.

From financial stability perspective there would be a need to mandate at entry level itself subsidiary form of presence (i.e. wholly owned subsidiary-WOS) under certain conditions and thresholds. It would likewise be mandatory for those fresh entrants who establish as branches to convert to WOS once they meet the conditions and thresholds referred to above or which become systemically important over a period by virtue of their balance sheet size.

While deciding the approach towards conversion of existing foreign bank branches, Indias commitments to WTO will have to be kept in mind.

It may not, therefore, be possible to mandate conversion of existing branches into subsidiaries. However, the regulatory expectation would be that those foreign banks which meet the conditions and thresholds mandated for subsidiary presence for new entrants or which become systemically important by virtue of their balance sheet size would voluntarily opt for converting their branches into WOS in view of the incentives proposed to be made available to WOS.

The branch expansion of both the existing foreign banks and the new entrants present in the branch mode would be subject to the WTO commitments.

5. Eligibility of the parent bank

5.1 Foreign banks applying to the RBI for setting up their WOS/branches in India must satisfy RBI that they are subject to adequate prudential supervision in their home country. In considering the standard of supervision exercised by the home country regulator, RBI will have regard to the Basel standards.

5.2 The setting up of WOS/branches in India should have the approval of the home country regulator.

5.3 Other factors (but not limited to) that will be taken into account while considering the application for setting up their presence in India are given below:

Economic and political relations between India and the country of incorporation of the foreign bank Financial soundness of the foreign bank Ownership pattern of the foreign bank International and home country ranking of the foreign bank Rating of the foreign bank by international rating agencies International presence of the foreign bank 6. Entry norms

6.1.1 In the light of the experience gained during the recent global financial crisis, it may be advisable to mandate presence in form of subsidiaries, at least in case of certain category of banks, on prudential grounds, at the entry point itself. From financial perspective, therefore, following category of banks may be mandated entry in India only by way of setting up a Wholly Owned Subsidiary (WOS):

Banks incorporated in a jurisdiction that has legislation which gives deposits made/ credit conferred, in that jurisdiction a preferential claim in a winding up.

Banks which do not provide adequate disclosure in the home jurisdiction.

Banks with complex structures,

Banks which are not widely held, and

Banks other than those listed above may also be required to incorporate locally, if the Reserve Bank of India is not satisfied that supervisory arrangements (including disclosure arrangements) and market discipline in the country of their incorporation are adequate or for any other reason that the Reserve Bank of India considers that subsidiary form of presence of the bank would be desirable on financial stability considerations.

6.1.2 Foreign banks in whose case the above conditions do not apply can opt for a branch or WOS on entry in accordance with the single mode of presence requirement as stated in Para 4.2. However, it would be mandatory for banks which opt for branch mode of presence to convert themselves into WOS if :

a) any of the conditionalities as mentioned in Para 6.1.1 materialise in the judgement of Reserve Bank of India or

b) they become systemically important by virtue of their balance sheet size. Foreign bank branches would be considered to be systemically important once their assets (on balance sheet and credit equivalent of off-balance sheet items) become 0.25% of the total assets (inclusive of the credit equivalent of off-balance sheet items) of all scheduled commercial banks in India as on March 31 of the preceding year.

6.2 Existing bank branches

As regards the conversion of foreign banks that already have branch form of presence in India prior to the implementation of the new policy, the regulatory stance would be as stated in Para 4.3 This would imply that the expectation of RBI would be that existing branches of foreign banks that meet the parameters set out in paragraph 6.1.1 above, or which are or become systemically important on account of their balance sheet size exceeding a threshold limit, would voluntarily convert themselves into WOS in view of the incentives proposed to be made available to WOS. The measure of systemic importance would be as laid down in Para 6.1.2 (b) above. It may be mentioned in this context that currently, top five foreign banks account for more than 70% of total balance sheet assets of foreign banks in India.

7. Full National Treatment

7.1 For WOS, by virtue of their local incorporation, full national treatment would be expected. However, as discussed in Para 3.1.8, this could create risks from financial stability perspective if the foreign banks come to dominate the domestic banking system. Further, a consolidation of the domestic banks both in private and public sectors is yet to take place under the twin approach model articulated in the Roadmap. Thus allowing full national treatment could lead to unintended consequences for the banking sector. It would, therefore, not be possible nor desirable to provide full national treatment to WOSs of foreign banks. However, they would be placed in a much better position than the foreign bank branches operating in India but less then that of domestic banks. This would provide very significant incentives for the WOS mode of presence of foreign banks in India.

7.2 Government of India, Department of Industrial Policy and Promotion (DIPP) vide its press notes 2, 3 and 4 (2009 Series) has defined foreign company as a company with more than 50 per cent foreign holding. Therefore, under the FDI policy as set out in Circular 1 of 2010 dated 31st March 2010 issued by DIPP, WOSs of the foreign banks will be treated as foreign owned and controlled companies. Hence,

WOSs of foreign banks will be treated as foreign banks. This would be an additional reason because of which it would not be possible to provide full national treatment to WOSs of foreign banks in India.

7.3 The extent of full national treatment and limitations thereon in matters like branch expansion, raising non-equity capital in India, priority sector lending, etc. are given in the subsequent paragraphs.

8. Capital Requirement

8.1 The minimum capital requirements for WOS on entry may generally be in line with those that would be prescribed for the new private sector banks. (RBI had issued a discussion paper on Entry of New Banks in the Private Sector on August 11, 2010 which inter alia covers the minimum capital requirement for new banks to be licensed in the private sector). Therefore, the WOS of foreign banks would be treated at par with the new private sector banks in regard to minimum capital requirement. The WOS shall be required to maintain a minimum capital adequacy ratio of 10 per cent of the risk weighted assets or as may be prescribed from time to time on a continuous basis from the commencement of operations.

8.2 The minimum net worth of the WOS on conversion from branches would not be less than the minimum capital requirement for new private sector banks. They would be required to maintain a minimum capital adequacy ratio of 10 per cent of the risk weighted assets or as may be prescribed from time to time on a continuous basis.

8.3 For foreign banks with branch mode of presence - both existing and new, the existing capital requirements will continue for the present i.e USD 25 million.

9. Corporate Governance

9.1 Any global entity would manage its investments on the basis of their assessment of the risk / return trade-off and allocate resources across various subsidiaries. The interest of the shareholders of the parent is the driving force for such decisions. Concerns may arise when the decisions taken for a subsidiary affect domestic depositors (and domestic shareholders, if the subsidiary is listed). Independent board members play an important role in protecting the interests of all stakeholders. Banks must include independent directors on their boards in order to make sure that management acts in the best interest of the local institution. Independent directors also ensure sufficient separation between the board of a bank and its owners to ensure that the board does not have unfettered ability to act in the interests of the owners where those interests diverge from those of the bank.

9.2 In some countries foreign bank subsidiaries operate like branches focussing above all on sales, with decision making powers being locally limited and risk management being located abroad. To address these tendencies Reserve Bank of New Zealand requires locally incorporated large entities conduct substantial portion of their business in and from New Zealand.

9.3 As the international experience shows, some of the important factors to be taken into account before a foreign bank is allowed to set up a subsidiary is the commitment of its parent to support the subsidiary, the ability of the subsidiary to operate on a standalone basis even when the parent faces crisis and also that the subsidiary is managed from the host country with most of the systems and controls residing within its jurisdiction and not managed remotely from the Head Office.

9.4 In order to ensure that the board of directors of the WOS of foreign bank set up in India acts in the best interest of the local institution, RBI may, in line with the best practices in other countries, mandate that (i) not less than 50 percent of the directors should be Indian nationals resident in India, (ii) not less than 50 percent of the directors should be non-

executive directors, (iii) a minimum of one-third of the directors should be totally independent of the management of the subsidiary in India, its parent or associates and (iv) the directors shall conform to the Fit and Proper criteria as laid down in our extant guidelines contained in RBI circular dated June 25, 2004, as amended from time to time. This would be in line with our roadmap released in February 2005.

10. Accounting, Prudential Norms and Other Requirements

10.1 The WOS will be subject to the licensing requirements and conditions, broadly consistent with those for new private sector banks.

10.2 The WOS will be governed by the provisions of Companies Act, 1956, Banking Regulation Act, 1949, Reserve Bank of India Act, 1934, other relevant statutes and the directives, prudential regulations and other guidelines /instructions issued by RBI and other regulators from time to time.

11. Raising of Non-equity capital in India

11.1 In terms of the current guidelines branches of foreign bank do not have access to the domestic rupee resources to augment their non-equity capital in India. They are permitted to raise funds from their Head Office for augmenting Tier I and Tier II capital through Innovative Perpetual Debt Instruments (IPDIs) and debt capital instruments subject to terms and conditions prescribed for Indian Banks and additional terms and conditions specifically applicable to foreign banks.

11.2 As regards permitting WOS of foreign banks to raise rupee resources through issue of non-equity capital instruments there can be two views. One view would be that since WOS is a locally incorporated bank it should have access to rupee resources in line with the private sector

banks. The other view could be that as WOS is a closely held foreign owned bank it should raise long term resources from the parent foreign bank in the shape of IPDI and debt capital instruments to demonstrate the parents commitment towards the host country.

11.3 As an incentive to foreign banks to set up WOS or convert their branches into WOS, RBI may allow them to raise rupee resources through issue of non-equity capital instruments in the form of IPDI, Tier I and Tier II Preference shares and subordinate debt as allowed to domestic private sector banks.

12. Branch expansion

12.1 With a view to creating an environment for encouraging foreign banks to set up WOS, a less restrictive branch expansion policy, though not at par with domestic banks may be envisaged. Accordingly, differentially favourable treatment to WOS of foreign banks as compared to the branches of other foreign banks may be put in place on the grounds of regulatory comfort that subsidiaries would provide.

12.2 Therefore, with a view to incentivise setting up of WOS/conversion of foreign bank branches into WOS, it is proposed that the branch expansion policy as applicable to domestic banks as on January 1, 2010, may be extended to WOS of foreign banks also. This would mean that the WOS would be enabled to open branches in Tier 3 to 6 centres except at a few locations considered sensitive on security considerations. Their application for setting up branches in Tier 1 and Tier 2 centres would also be dealt with in a manner and on criteria similar to those applied to domestic banks.

12.3 The expansion of the branch net work of foreign banks in India both existing and new entrants who are present in branch mode would be strictly under the WTO commitments of 12 branches or as may be modified from

time to time. The withdrawal of the current stance of permitting larger number of branches than the commitment under WTO of 12 branches each year is to incentivise the foreign banks with branch mode of presence to move to WOS structure.

13. Measures to contain dominance of foreign banks

13.1 As discussed in Para 3.1.8, there is a downside risk to financial stability of the dominance of foreign banks over the domestic banking system on account of the near-national treatment proposed in several respects to WOSs. Therefore, in order to ensure that such a situation does not come about, certain restrictive measures would have to be put in place. At present under the WTO commitments, there is a limit that when the assets (on balance sheet as well as offbalance sheet) of the foreign bank branches in India exceed 15% of the assets of the banking system, licences may be denied to new foreign banks. Building on this to address the issue of market dominance, it is proposed that when the capital and reserves of the foreign banks in India including WOS and branches exceed 25% of the capital of the banking system, restrictions would be placed on (i) further entry of new foreign banks, (ii) branch expansion in Tier I and Tier II centres of WOS and (iii) capital infusion into the WOS this will require RBIs prior approval.

14. Priority Sector lending requirements for WOS

14.1 Since the WOS of foreign banks will be locally incorporated banks they should not be treated very differently from domestic banks in respect of Priority Sector Lending norm. Priority sector obligations on WOS have, therefore, to be more onerous than for branches of foreign banks but less than those for domestic banks since they would not get full national treatment.

14.2 Further, Raghuram Rajan Committee has also recommended giving WOSs same rights as private sector banks together with requirement to fulfil priority sector

lending norms at par with domestic banks viz. 40% as against 32%.

14.3 In terms of extant priority sector lending norms foreign banks are required to extend lending to the priority sector (total) to the extent of 32% (against 40% for domestic banks) of Adjusted Net Bank Credit (ANBC) or credit equivalent amount of off-balance sheet exposure, whichever is higher.

14.4 Foreign banks play a significant role in financing foreign trade and as a matter of fact, most of the foreign banks have opened branches to cater to trade-finance. Having expertise in handling foreign trade, foreign banks have contributed significantly in rapid rise of cross border trade. Reserve Bank may, therefore, allow WOS of foreign banks also to classify export finance as a part of their priority sector lending.

14.5 At present, no target or sub-target for agricultural lending has been prescribed for the branches of foreign banks. However, keeping in view the role of agriculture in Indian economy, WOS of foreign banks should also be required to lend to agriculture in India, as is the case with domestic banks. It is, however, proposed to prescribe a lower sub-target for lending to agriculture sector by these WOSs, since the branch spread of these banks will be limited due to their not being given full national treatment. Accordingly, a lower sub-target at 10% may be fixed for these WOSs against the target of 18 % for domestic commercial banks.

Analogous to domestic banks, not more than 2.5% out of sub-target of 10% should relate to indirect agriculture finance. As regards any shortfall in achieving PSL norms, the extant instructions applicable to the branches of foreign banks may be made equally applicable to WOSs of foreign banks.

14.6 Following norms are proposed for WOS of foreign banks

towards lending to Priority Sector:

Newly set up WOS of foreign banks may be required to comply with the Priority Sector Lending (PSL) norms as given below from day one.

Sr.N Particulars o. 1. Total Priority Sector Lending target

Target

40% of Adjusted Net Bank Credit (ANBC) or credit equivalent amount of off-balance sheet exposure whichever is higher

2.

Sub-target for 12% of Adjusted Net Export credit Bank Credit (ANBC) or credit equivalent amount of off-balance sheet exposure whichever is higher Sub-target for 10% of Adjusted Net agricultural Bank Credit (ANBC) or advances credit equivalent amount of off-balance sheet exposure whichever is higher [Not more than 25% of above 10% i.e. 2.5% of Adjusted Net Bank Credit (ANBC) or credit equivalent amount of offbalance sheet exposure whichever is higher should relate to indirect agriculture advances] Small enterprise advances 10% of Adjusted Net Bank Credit (ANBC) or credit equivalent amount of off-balance sheet exposure whichever is

3.

4.

higher

14.7 WOSs set up by conversion of existing branches of foreign banks

14.7.1 WOS set up by conversion of existing branches may be allowed a transition period of five years from the year in which they incorporate in India for meeting priority sector lending norms. The following table lays down the proposed roadmap for achieving 40% PSL target, sub-target of 10% towards agriculture sector by WOSs :

Year

Increase in Total PSL PSL target

Sub-target for agriculture lending 2% 4% 6% 8% 10%

1st 2nd 3rd 4th 5th

2% 2% 2% 2% -

34% 36% 38% 40% 40%

15. Use of Credit Rating and Parent / Head Office Support

15.1 If the parent is allowed to give explicit guarantees to the creditors for the liabilities of the subsidiary, it would strengthen the subsidiary structure. In case the subsidiary fails, the clients who have the guarantees and standby letters of credit (SBLCs) from the parent bank may be able to recover their dues from the parent thus leaving more assets of the subsidiary to satisfy domestic claims. However, on the other hand if such a support is permitted the WOSs would have an unfair competitive advantage over domestic banks in terms of lending, raising resources from domestic and overseas markets as well as providing certain niche services like custodial business to FIIs etc. It is, therefore, proposed

to treat WOS of foreign banks at par with domestic banks in this regard.

15.2 Nevertheless, the parent bank may be required to issue a letter of comfort to the Reserve Bank, as is required in many jurisdictions today, for meeting the liabilities of the WOS.

16. Tax treatment

16.1 It appears that for any Capital Gains Tax arising out of transfer of property, goodwill and other assets of capital nature to its own newly incorporated subsidiary in India the provisions of Section 47(iv) of Income Tax Act, 1961 would be applicable to foreign banks converting their branches into subsidiaries. Foreign banks may approach the appropriate authority for suitable clarification.

17. Declaration of dividends

17.1 A suggestion has been made that in the initial years of its formation, the WOS should be allowed to remit profits like a branch in India. Foreign banks with branch presence in India are allowed to repatriate profits in the ordinary course of their business. However the wholly owned subsidiaries of foreign banks, being banks incorporated in India, may declare dividends like domestic banks subject to criteria laid down in RBI circular DBOD.No. BP.BC. 88/ 21.02.067/2004/05 dated May 04, 2005. In terms of the said circular general permission has been granted for declaring dividends only to those banks, which comply with the following minimum prudential requirements.

(i) The bank should have :

* CRAR of at least 9% for preceding two completed years and the accounting year for which it proposes to declare

dividend.

* Net NPA less than 7%.

In case any bank does not meet the above CRAR norm, but is having a CRAR of at least 9% for the accounting year for which it proposes to declare dividend, it would be eligible to declare dividend provided its Net NPA ratio is less than 5%.

(ii) The bank should comply with the provisions of Sections 15 and 17 of the Banking Regulation Act, 1949.

(iii) The bank should comply with the prevailing regulations/ guidelines issued by RBI, including creating adequate provisions for impairment of assets and staff retirement benefits, transfer of profits to Statutory Reserves etc.

(iv)The proposed dividend should be payable out of the current year's profit.

(v)The Reserve Bank should not have placed any explicit restrictions on the bank for declaration of dividends.

18. Setting up of NBFCs by the WOS of foreign banks

18.1 Under the provisions of Section 19(2) of the Banking Regulation Act, 1949, a banking company cannot hold shares in any company whether as a pledgee or mortgagee or absolute owner of an amount exceeding 30 per cent of the paid-up share capital of that company or 30 per cent of its own paid-up share capital and reserves, whichever is less.

18.2 In terms of the extant RBI instructions, which are more restrictive, the investment by a bank in a subsidiary company, financial services company, financial institution,

stock and other exchanges should not exceed 10 per cent of the banks paid-up share capital and reserves and the investments in all such companies, financial institutions, stock and other exchanges put together should not exceed 20 per cent of the banks paid-up share capital and reserves.

Investments which are made as part of the treasury operations of banks purely for the purpose of trading can be excluded for the purpose of the 20 percent cap. Banks cannot also participate in the equity of financial services ventures including stock exchanges, depositories, etc. without obtaining the prior specific approval of the Reserve Bank of India notwithstanding the fact that such investments may be within the ceiling prescribed under Section 19(2) of the Banking Regulation Act.

18.3 RBI does not view favourably setting up of subsidiaries or significant investment in associates for activities that can be undertaken within the bank.

18.4 The WOS being a locally incorporated bank may be subjected to the regulations as applicable to Indian banks detailed above. In the case of WOS approval for setting up subsidiaries or significant investment in associates will also factor in whether there are NBFCs set up by the parent banking group under FDI rules for undertaking same or similar activity.

19. Regulatory framework for consolidated prudential accounting and supervision

19.1 The regulatory framework for consolidated prudential reporting and supervision, currently applicable to branches of foreign banks as laid down in circular DBOD No.FSD.BC. 46/24.01.028/2006-07 dated December 12, 2006 may also be made applicable to WOS in all cases where NBFCs are promoted by the foreign bank parent/group of the WOS in India .

20. Mergers / Acquisitions and Dilution of WOS to 74 %

20.1 In February 2005, the Road map for presence of foreign banks in India indicated that:

i) Foreign banks may be permitted to invest in private sector banks that are identified by RBI for restructuring. In such cases foreign banks would be allowed to acquire a controlling stake in a phased manner.

ii) The WOS of foreign banks on completion of a minimum prescribed period of operation will be allowed to list and dilute their stake so that at least 26 per cent of the paid up capital of the subsidiary is held by resident Indians at all times. The dilution may be either by way of Initial Public Offer or as an offer for sale.

iii) After a review is made with regard to the extent of penetration of foreign investment in Indian banks and functioning of foreign banks, foreign banks may be permitted, subject to regulatory approvals and such conditions as may be prescribed, to enter into mergers and acquisition transactions with any private sector bank in India subject to the overall investment limit of 74 per cent.

20.2 The issue of dilution or listing of WOS of foreign banks in India and allowing mergers and acquisitions of Indian private sector banks by foreign banks or their WOS may be considered after a review is made of experience gained on the functioning of WOS of foreign banks in India.

21. Differential licensing

21.1 In India, the penetration of banking services is very low. Less than 59 % of adult population has access to a bank account and less than 14 % of adult population has a loan

account with a bank and priority sector provides an avenue for financial inclusion. Further, as a policy RBI has not so far encouraged banks that do not subscribe to a business model that supports financial inclusion in general. Reserve Bank of India would not consider granting differential licence to foreign banks seeking entry in 'niche markets, since if at this stage it is decided to go in for differential bank licence for foreign banks, it may be a setback to the goal of Financial Inclusion which is being vigorously pursued by RBI.

22. This discussion paper gives broad contours of the proposed policy on the mode of presence of foreign banks in India. Reserve Bank hereby invites feedback/ suggestions on the proposals from all stakeholders. Feed back/suggestions may be furnished within a period of 45 days from the date of publication of the Discussion Paper on RBI website. The guidelines delineating the Road Map for presence of foreign banks in India would be finalised after taking into account the feedback/suggestions received from the stakeholders.

1Section 11(2): Banking companies incorporated outside India are required to maintain a certain amount of paid-up capital and reserves. Further, they are required to deposit with RBI, in cash or securities, an amount equal to their capital and reserves and 20 per cent of its each years profit.

Section 11(4): Claims of all creditors of the company in India shall have first charge on the amounts kept deposited with the RBI under Section 11(2).

Section 25: Every banking company is required to maintain assets in India which shall not be less than 75 per cent of its demand and time liabilities in India.

The world's local bank

Account Rules / Terms and Condtions

Account Rules
Current Accounts HSBC Savings Account HSBC Advance Current and Savings Account HSBC Fixed Deposit Non-Resident Accounts Senior Citizens Minors Account

Cheque Books General Cheque Deposit Boxes / CDBs Cheque Deposit Timings RTGS / NEFT Cut-off Timings Extended Banking Hours International ATM Card Internet Banking Phone Banking Mobile Alerts

Know More
As an accountholder with HSBC, you stand to benefit from a wide number of services, each designed to make operating your account easier. With a range of transactions and many special features to enjoy, you will find banking with HSBC a pleasant experience. Please read on to learn more about how you can maximise the advantages of holding an account with HSBC.

Current Accounts
Opening an account Current Accounts can be opened by individuals, sole proprietorship concerns, partnership firms, private, public limited companies, associations, clubs, societies, trusts or other institutions, upon being introduced in a manner satisfactory to the Bank. The account can be opened either singly or jointly, with one or more persons. A joint account can be operated either jointly or severally as arranged with the Bank. The arrangement decided upon will also hold for survivor/s. The accountholders can also authorise a person to operate an account on his, their behalf by providing a Power of Attorney. In line with RBI requirements, passport sized photographs of all accountholders / authorised signatories will have to be submitted to the Bank along with other documentation for opening a new account (as defined on the Account Opening Form). Withdrawals Cash withdrawals should only be made on the printed cheque forms supplied by the Bank and

or through Automated Teller Machines (ATMs). The Bank reserves the right to apply the service change based on the number of transactions made during the month as per the Tariff. The account should not be overdrawn nor should cheques be drawn against funds in course of realisation unless special arrangements have been made with the Bank. Interest Deposits in the account do not attract any interest. Customers will repay to the Bank on demand and unconditionally the amounts of overdrafts which the Bank may grant from time to time in the account together with the interest accrued thereon. This should not be construed as an agreement, either expressed or implied, that the Bank is bound to grant any overdraft facility whatsoever. For overdrawn accounts, interest is charged at prevailing interest rates on daily outstanding. In the absence of any special arrangements, the Bank is not required to honor any cheques drawn by the accountholders if in doing so the account would become overdrawn and in this circumstances the Bank reserves the right to debit the account with the charge for each returned cheque.

HSBC Savings Account

Opening an account A savings account maybe opened by one or more persons properly introduced and approved by the Bank. Savings Accounts can only be opened by non-profit making Trusts / Hindu Undivided Families besides individuals. A joint account can be operated either jointly or severally as arranged with the Bank. The arrangement decided upon will also hold for survivors. The account holder(s) can also jointly authorise a person to operate an account on his / their behalf by providing a Power of Attorney. In line with RBI requirements, passport sized photographs of all accountholders will have to be submitted to the Bank along with other documentation for opening a new account. Withdrawals Cash withdrawals should only be made on the printed cheque forms supplied by the Bank or through ATMs. The Bank reserves the right to apply the specified service charges as stipulated in the printed Tariff. The account should not be overdrawn nor should cheques be drawn against funds in course of realisation. Interest The rate of interest on Savings Accounts is subject to change from time to time in accordance with the directives of the Reserve Bank of India. The current rate is displayed at our counters. With effect from 1st April 2010, interest on the savings bank accounts will be calculated on daily product basis, as per RBI circular dated 24 April 2009 and interest will be paid out at half yearly rest with effect from 1 October 2010. For the period after 1 October 2010, savings account interest for the half year from April to September would be credited in the following month of October and interest for the half year from October to March would be credited in

the following month of April. Customers will repay to the Bank on demand and unconditionally the amounts of overdrafts which the Bank may grant from time to time in the account together with the interest accrued thereon. This should not be construed as an agreement, either expressed or implied, that the Bank is bound to grant any overdraft facility whatsoever. In the absence of any special arrangements, the Bank is not required to honour any cheques drawn by the accountholder(s) if in doing so the account would become overdrawn and in this circumstances the Bank reserves the right to debit the account with the charge for each returned cheque.

Current and Savings Account

Deposits The initial minimum deposit to open an account is as per our current Tariff. Average minimum balance as per our current Tariff should always be maintained, failing which a service charge will be levied. The Bank reserves the right to close at any time any account in which the minimum balance is not maintained without further notification to the accountholder(s). Cheques, dividend warrants and other instruments in the name of accountholder will be collected but those in favour of payees other than the accountholders will not be accepted for collection. Closure of Accounts 1. When an account is closed either by the constituents or by the Bank, the constituents are required to return the ATM card / Debit Card and all the unused cheques to the Bank. Also closure of account requires signatures of all accountholders. 2. A charge as per our current Tariff will be recovered from an account holder before the expiry of the specified number of months from the date of opening the account. 3. Board resolution to be submitted for closure of a Company Account. 4. In the event of frequent cheque returns the Bank reserves the right to close the account. 5. All partners to sign for closure of a partnership account. ATM Funds Transfer The customer can authorise the Bank to transfer funds from his account to third party beneficiaries as specified during operation of the ATM, subject to the Bank's policies. The Bank may, at its discretion, withdraw temporarily or terminate the ATM funds transfer facility. The Bank reserves the right to change the maximum per day limit for funds transfer through the ATM.

HSBC Fixed Deposit

Resident 1. The Bank accepts deposits for fixed periods. Details about various periods, current rates of interest and minimum deposits are available upon request. 2. Deposits established with the proceeds of cheques will be value dated after clearance. 3. The rate of interest payable is subject to the directive that may be issued by the Reserve Bank of India from time to time. 4. The Fixed Deposits will be renewed automatically on maturity unless any specific instruction is required from the accountholder. 5. In case of cumulative Fixed Deposits the interest is compounded quarterly at the prescribed rate and is paid to the accountholder along with the principal at the end of the term. 6. In the case of joint accountholders premature upliftment of deposits will require authorisation by all accountholders. 7. The Bank, on request from a depositor, would allow withdrawal of a Fixed Deposit before completion of the period of the deposit agreed upon at the time of placement of the deposit subject to penalty on premature withdrawal of Fixed Deposit as may be applicable as per the table appended belowPenal Rates DATE OF PLACEMENT OF FIXED DEPOSIT(FD) On or before 31 March 2011 On or after 1st April 2011 FD Value: < INR 1.5 Mn FD Value: INR 1.5 Mn < INR 40 Mn FD Value: INR 40 Mn and above

1% 1%

1% 1.5%

1% 2%

The interest paid will be lower by the Penal Rate (as may be applicable to the value and date of placement of the Fixed Deposit as defined in the above table) than the rate prevailing on the date of placement of the deposit for the period for which the deposit remained with the Bank or the contractual rate, whichever is lower. No interest will be paid on premature withdrawals of deposit which has remained with the Bank for less than the minimum period for which deposits were being accepted for the said currency and deposit type, as on the date of placement of deposit. 8. The sole / first deposit holder will be usually regarded as the beneficial owner of the fixed deposit and considered as the payee of the purposes of income tax deduction at some source

(TDS) from the interest on such deposit. It is essential for the first holder in joint account to provide PAN details to the bank to avoid deduction of tax at higher rates. In case the first account holder is not the beneficial owner / sole beneficiary of such interest then all the account holders need to give their respective PAN numbers and file a declaration in writing giving details of sharing proportion of such interest income. 9 a. TDS, when due and applicable will be deducted in accordance with the provisions of the Income Tax Act,1961 and the Rules thereunder as in force. Such TDS shall be recovered from saving/current/demand deposit a/c(s). Please designate the account from where you would like the TDS amount to be deducted for all existing accounts. Please also provide details of the designated account as and when you renew/place additional deposits with HSBC India. For cumulative deposits, in case of non designation of an account or lack of funds in the designated account, or if you hold only cumulative term deposit account/s at HSBC India, the TDS (where applicable) would be recovered from the Interest being accumulated to / paid on the deposit. For ordinary deposits, in the absence of a revert from you for designation of the applicable account or if the designated account is out of funds, or if you hold only ordinary term deposit account/s at HSBC India, HSBC India will recover TDS (where applicable) from the maturity proceeds or from the encashment proceeds (in case of pre-mature encashment) of the deposit. Please contact our branch and submit the necessary documents in case lower TDS applies as provided by the relevant tax treaties. These documents should be submitted along with the Account opening Form and also before the start of each new financial year. HSBC India reserves its right to reject any such claims. Hence any claim for refund of TDS will lie directly with the Government of India and HSBC India will not be liable in any manner.' 9 b. Individuals who wish to avail exemption from TDS should submit duly filled in Form 15G/15H as applicable with the bank. Such exemption from TDS will take effect from the following month of the date of submission of Form 15G/15H. For every financial year individual would need to submit a new Form 15G/15H. 10. Incase of Joint accountholders where one of the account holder is a Senior Citizen, kindly note that Senior Citizen Fixed Deposit Interest Rate will only be applicable provided the Senior Citizen is the 'First holder' on the said Fixed Deposit. A senior citizen is defined as a person above the age of 60 years. 11. Deposits held by minors are subject to TDS. The credit for the TDS can be claimed by the person in whose hands the minor's income is included.

Non-Resident Accounts
1. The Banks NRI Deposit Accounts scheme is open to non-resident Indians only. The term 'Non-Resident Indian' refers to Indian nationals and foreign passport holders of Indian origin. They include spouses of Indian citizens and any individual whose parents or grandparents was / were resident in undivided India.

2. All deposits, whether savings, current or time deposits are placed with the Bank under the Reserve Bank of India (RBI) regulations, and are governed by and subject to laws in effect from time to time and payable only at the branch where such deposits are made. 3. Deposits will be accepted under the RBI's FCNR (B) scheme in US dollars, Pound Sterling, Japanese Yen, EURO, Canadian Dollars and Australian Dollars. All other deposits may be tendered in any other acceptable currency but are maintained in Indian Rupees. 4. The Bank reserves the right to reject any deposit application without assigning any reason whatsoever. 5. Deposits established with the proceeds of cheques will be value-dated after clearance. 6. The Bank shall not be obliged to accept or repay the deposit(s) in cash. 7. The foreign currency equivalent of the principal and interest on repatriable Rupee deposits and accounts can increase or decrease depending upon foreign exchange fluctuations. TYPES OF ACCOUNTS NRE account: To be funded with remittance from overseas or transferred from other NRE / FCNR accounts. Local credits are not permitted. Both principle and interest are fully repatriable. Can be held as Savings, Current or Fixed Deposits. NRO account: Can be funded by remittance from overseas or through local sources. Interest accrued on Fixed Deposits is repatriable after tax deduction at source. Principal is not repatriable. Can be held as Savings, Current or Fixed Deposit. FCNR-B (Fixed Deposits): Held in foreign currency only. Can be funded with remittance from overseas or through transfers from NRE accounts. Both principle and interest are fully repatriable. Fixed Deposit accounts 1. The Bank accepts Local Currency or Foreign Currency Fixed Deposit Account from NRIs (individuals) in the form of NRE, NRO, FCNR deposits for fixed periods and currencies. Details about the various periods, current rates of interest and minimum deposits are available upon request. 2. The rate of interest payable on the deposit as prescribed by the Bank is subject to the directives that may be issues by the Reserve Bank of India from time to time. 3. In case of a cumulative Fixed Deposit, the interest is compounded at quarterly rests at the prescribed rate for local currency deposit and at half yearly rests for foreign currency deposits and is paid to the accountholder along with the principal at the end of the term. 4. Interests on an Ordinary Fixed Deposit is payable to the accountholder every quarter in case of local currency deposits and at half yearly rests for foreign currency deposits and is

paid to the accountholder along with the principal at the end of the term. 5. Interest is not taxable in case of NRE and FCNR Fixed Deposits held by individuals. In the case of NRO deposits, tax is deducted at source at the rate of 30.60 %. 6. The deposit will be renewed automatically on the due date for an identical period at the applicable rate of interest ruling on the date of maturity unless an instruction to the contrary is received from the depositor by the Bank. The renewal will be in accordance with the provisions of the relevant Reserve Bank of India scheme in force at the time of renewal. 7. Premature withdrawal minimum periods for the following accounts are: NRE - 12 months; FCNR -12 Months; NRO - 15 days. 8. In case of FCNR (B) deposits, premature withdrawals will be subject to the penalties as determined by the Bank from time to time on account of interest rate movements and swap cost movement. 9. The Bank, on request from a depositor, would allow withdrawal of a Fixed Deposit before completion of the period of the deposit agreed upon at the time of placement of the deposit subject to penalty on premature withdrawal of Fixed Deposit as may be applicable as per the table appended below (Applicable to NRO Deposits only) Penal Rates DATE OF PLACEMENT OF FIXED DEPOSIT(FD) On or before 31 March 2011 On or after 1st April 2011 FD Value: < INR 1.5 Mn 1% 1% FD Value: INR 1.5 Mn < INR 40 Mn 1% 1.5% FD Value: INR 40 Mn and above

1% 2%

The interest paid will be lower by the Penal Rate (as may be applicable to the value and date of placement of the Fixed Deposit as defined in the above table) than the rate prevailing on the date of placement of the deposit for the period for which the deposit remained with the Bank or the contractual rate, whichever is lower. No interest will be paid on premature withdrawals of deposit which has remained with the Bank for less than the minimum period for which deposits were being accepted for the said currency and deposit type, as on the date of placement of deposit.

Senior Citizens
Incase of Joint accountholders where one of the account holder is a Senior Citizen, kindly note that Senior Citizen Fixed Deposit Interest Rate will only be applicable provided the

Senior Citizen is the 'First holder' on the said Fixed Deposit. Bank at its discretion may offer higher rate of interest on Fixed Deposits for resident Indian Senior Citizen customers. Resident Indian Senior Citizen Customers are therefore requested to check the applicable interest rates valid for Senior Citizen Customers displayed at our branches or visit Bank's website at www.hsbc.co.in prior to the placement of the Fixed Deposit A senior citizen is defined as a person above the age of 60 years.

Minors Account
Savings Account An account exclusively in the name of a literate minor may be opened and operated upon by such a minor if he / she has completed the age of 10 years. An account may be opened on behalf of a minor by his / her natural guardian or by a guardian appointed by a court of Competent Jurisdiction. Upon the minor attaining majority, the right of the guardian to operate the account shall cease and any balance in the account will be deemed to belong exclusively to the hitherto minor who has attained majority, and unless he / she confirms in writing his / her intention to continue the account, further operation cannot be allowed. Account Type Minor account holder Guardian of Minor Sole Account holder Guardian of Minor Joint account holder (Either or Survivor) Minor Account holder (Joint Signing mandate) Guardian of Minor Joint account holder (Joint Signing mandate) Internet Banking No Yes Yes No No Phone Banking No Yes Yes No No

Know More
Cheque Books
1. An application for a cheque book on a Savings / Current Account must be made on the Bank's requisition slip, duly signed by the accountholders. All cheque books issued by the Bank should be kept in a secure place at all times. 2. The Bank reserves to itself the right to refuse issue of cheque books on accounts which are not maintained satisfactorily and also when an excessive number of cheques from the previous cheque book remain unused.

3. The attention of the customers is particularly drawn to the condition subject to which cheque books are currently issued as printed on the inside of the front cover of the cheque book. 4. As per RBI guidelines on Alterations / Corrections on cheques, effective 1 December 2010, no changes / corrections would be allowed on cheque forms (with exception of date). For any changes in the cheque, a fresh cheque form needs to be issued. (This will be applicable only for cheques cleared under the image based cheque truncation system (CTS), which is currently operational in Delhi and will be implemented across India in future. This is not applicable to cheques cleared under other clearing arrangements such as MICR clearing, nonMICR clearing, over the counter collection (for cash payment) or direct collection of cheques outside the Clearing House arrangement.) 5. The amount of a cheque must be stated in both words and figures. 6. Accountholders should exercise care when drawing cheques and should not draw cheques by any means, which may enable a cheque to be altered in a manner, which is not readily detectable. 7. The cheque will be returned unpaid if the drawer's signature differs from that on record at the Bank. The same style and mode of signature as per specimen given to the Bank must be adhered to. 8. Cheque books will either be available at our counters or delivered directly to the customer. 9. A change as per our current Tariff will be recovered for recording stop payments. 10. Customers cannot print chequebooks or other payment instruments without written approval of the Bank. 11. NRE accountholders should complete the declaration on the reverse of the cheque leaf as per RBI requirements.

Cheque Deposit Boxes / CDBs

In this "item" or "items" include cheques, bills of exchange, warrants, payment warrants, and all other payment instruments whatsoever. 1. The items deposited in any CDB will be sent by the Bank for clearing within the period as indicated on the box but not later that 2 days. 2. The Bank has appointed a service provider for collecting the items from the CDBs. The service provider shall collect the items from the CDBs and hand over the same to the Bank. The Bank will be responsible for the items upon receipt of the same from the service provider.

3. The Bank will not be held responsible for any loss and / or damage to items dropped in the CDBs. If these boxes are damaged, opened or tampered with by unauthorised persons, or if any items or the Boxes are damaged as a result of force majeure, including without limitation, any Act of God, strikes, lockouts, closure, riots, civil commotion, law, rule, regulation, embargo, moratorium, exchange restriction, unforeseen declaration of a public holiday, or any cause of the like nature beyond the reasonable control of the Bank. 4. The CDBs shall not be used for dropping cash and / or post dated cheques. The Bank will not be held responsible for such post-dated cheques and / or cash deposits. 5. The maximum value of items to be dropped in the CDBs shall not exceed Rs. 1 lakh. 6. All high value cheques which exceed Rs. 1 lakh should be deposited at the Bank's branches only. 7. Cheque Collections Policy

Cheque Deposit Timings

The cheque deposit timings at the respective branches are subject to change without prior notice.

Click here to view the cheque deposit timing for your branch

Extended Banking Hours

All branches of the Bank which offer extended banking hours: Transactions as indicated by the Bank from time to time including transactions such as deposits, withdrawals, transfers, instrument purchases (example those relating to cash, cheques, pay orders, demand drafts, telegraphic and other transfers, opening of accounts, changes to account title, mode of operation, mandate, replacement of ATM Cards), sought after the time on any other day when clearing, recording and processing of transactions in its books is affected by the Bank in the ordinary course of business, may, at the sole discretion of the Bank, be specified in any statement of account or other communication sent to me / us as having taken place on the next or any preceding business day for the Bank and not on the actual day of the transaction sought. All deductions / accretions on the amounts shall be deducted / accrued as of such business day. The Bank shall not be responsible or liable in any manner for and / or on account of so processing and giving effect to the transactions and shall not be responsible for any losses including loss of interest, or for any liability incurred / suffered by the customer including but not limited to, for return of cheques, arising out of a transaction not being shown as of the actual day. Instruments as indicated by the Bank from time to time (example cheques, demand drafts, pay orders), deposited after the time of clearing on any other day for the day by the Bank in the ordinary course of business, shall be sent for clearing only on the

next business day.

General
1. The Hongkong and Shanghai banking Corporation Limited, India here in referred to as the 'Bank' has principal place of business is the Hongkong SAR. 2. The Bank reserves the right to close any account without assigning any reason by giving a notice of 30 days to the account holders. 3. For large cash withdrawals above INR 1 lac advance notice should be given at the branch. 4. The Bank reserves the right not to disclose account information to the customer over the telephone. 5. Currently the applicable Unauthorized Overdraft Rate of the Bank is 35% p.a. , which is subject to change from time to time. 6. Current Accounts / Savings Accounts which have not been operated for a period of two years and will be classified as 'unclaimed' and will be levied a charge as per our current Tariff. Accountholders will have to personally visit the branch with suitable identification to reactivate the accounts / close, the account. 7.i) Succession to the amount lying to the credit of the account and / or operation thereof on the death of the person authorised to operate upon the account shall be in accordance with the Deceased Depositor Policy of the Bank and rules for the purpose prescribed by the Bank from time to time and effective at the date of the claim. ii) Nomination facility is available for all types of accounts of individuals, single / joint proprietorship concern as per the Nomination rules framed under the relevant Act. Customers are advised to make use of this facility in their own interest. iii) Only one nomination can be made for each account, RBI approval is required for repatriation of proceeds where nomination is filed in favour of the NRI. 8. Resident Savings Account customers will receive a mail every month in their internet banking messages inbox as well as on personal email address (provided their personal email id is registered with the Bank) informing when the E-Statement is ready. Resident Savings Account customers can also collect their monthly paper statements from the branch where the customer maintains his/her account by visiting the branch in person to collect the same. Monthly statements will only be available in the branch for the preceding month.If statements are requested in frequencies higher than the above or if statements are to be held at the branch for collection a charge will be levied as per our current Tariff. The statement will not be generated if no transactions are effected during the stipulated period of the statement cycle. 9. The Accountholder is deemed to have received each statement of account for the preceding month, either on actual receipt of the statement of account or 10 days after the dispatch of the statement of account by the Bank, whichever is earlier (Prescribed Period).Upon receipt of

each statement of account and in any event no more than 30 (thirty) days from the prescribed period mentioned above, the Accountholder agrees to immediately notify the Bank in writing of any errors, omissions, irregularities, including any fraudulent or unauthorized transactions or any other objections the Accountholder has to that statement of account. If the Accountholder fails to notify the Bank within 30 (thirty) days, the statement of account and all entries therein, will be conclusive evidence of the correctness of the contents and binding upon the Accountholder and/or any person claiming under or through such Accountholder without the requirement for any further proof and the Bank will be released from all liability for any transaction (including all charges, damages and losses of any kind whatsoever, taxes, levies, fines, fees or penalties suffered and/or incurred) occurring up to the date of the most recent statement of account except for transactions the Accountholder gave notice of in accordance with this section. 10. Duplicate statements of past transactions are issued against payment of charges as per the Bank's current Tariff. 11. Accounts upon which an attachment order or other legal notice prohibiting operations of the accounts has been received will be freezed ruled off and no further operation will be allowed till such time as the prohibition order is removed. 12. Customer transactions will be entertained during normal banking hours as may be in force from time to time. 13. Accountholders should notify the Bank of any change in address. 14. The Bank allocates a unique customer number to each customer called as Customer ID (identification) number and the customers are requested to quote this number for every additional account opened with any branch of HSBC. 15. The Bank may without notice combine or consolidate account(s) with and liabilities to the Bank and shall have the right to set-off or transfer any sum(s) standing to the credit of such account(s) or any other sum(s) due or payable to the Bank from the customer in or towards satisfaction of the customers liabilities to the Bank on any other respect whether such liabilities be actual or contingent, primary or collateral and several or joint. 16. Holders of Non-Resident accounts should advise the Bank immediately upon return to India if they intend to take permanent residence in India. 17. The Bank reserves the right to amend the current Tariff after providing a 30 day notice to customers. 18. The Bank reserves the right to debit your savings/current account for the value of any Foreign Currency Cheque/s (FCY) sent through the Bank for collection and collected by the Bank either under the Cash Letter Service or as a direct collection item to the drawee bank, because of the cheque/s being returned unpaid (for any reasons whatsoever) by the drawee bank at a date later than us passing the credit to your account. 19. The Bank remains entitled to assign any activities to any third party agency at its sole discretion.

20. Bank deposits are covered under the insurance scheme offered by Deposit Insurance and Credit Guarantee Corporation of India (DICGC) upto an aggregate value of Rs 1 lakh per depositor. 21. The Bank and other members of the HSBC Group are required to act in accordance with the laws, regulations and requests of public and regulatory authorities operating in various jurisdictions which relate to, amongst other things, the prevention of money laundering, terrorist financing and the provision of financial and other services to any persons or entities which may be subject to sanctions. The Bank may take, and may instruct (or be instructed by) any other member of the HSBC Group to take, any action which it or such other member, in its sole and absolute discretion, considers appropriate to take in accordance with all such laws, regulations and requests. Such action may include but is not limited to: the interception and investigation of any payment messages and other information or communications sent to or by the account holder or on the account holder's behalf via the systems of the Bank or any other member of the HSBC Group; and making further enquiries as to whether a name which might refer to a sanctioned person or entity actually refers to that person or entity. Neither the Bank nor any member of the HSBC Group will be liable for loss (whether direct or consequential and including, without limitation, loss of profit or interest) or damage suffered by any party arising out of: i. any delay or failure by the Bank or any member of the HSBC Group in processing any such payment messages or other information or communications, or in performing any of its duties or other obligations in connection with any accounts or the provision of any services to the account holder, caused in whole or in part by any steps which the Bank or such other member, in its sole and absolute discretion, considers appropriate to take in accordance with all such laws, regulations and requests; or ii. the exercise of any of the Bank's rights under this clause. In certain circumstances, the action which the Bank may take may prevent or cause a delay in the processing of certain information. Therefore, neither the Bank nor any member of the HSBC Group warrants that any information on the Bank's systems relating to any payment messages or other information and communications which are the subject of any action taken pursuant to this clause is accurate, current or up-to-date at the time it is accessed, whilst such action is being taken. 22. For Standing Instructions, the Bank accepts no responsibility for any loss or delay which may occur in the transfer, transmission and/or application of funds or (in the case of remittance by telegraphic transfers) for any error, omission or mutilation which may occur in the transmission of any message or for its misinterpretation when received and the Bank stands indemnified against any actions, proceedings, claims and/or demands that may arise in connection with such loss, delay, error, omission, mutilation or misinterpretation.

International ATM Card

In consideration of the Hongkong and Shanghai Banking Corporation Limited ("the Bank") issuing to me / us an International ATM Card ('the card'), I / we hereby agree to be bound by the following Terms and Conditions: In these terms and conditions, to which the use of ATMs will be subject, 'the card' shall mean any card issued to the Cardholder by the Bank which may be used to effect banking transactions by electronic means whether at Automated Teller Machines ("ATMs"), point of sale terminals or otherwise , "Cardholder's Account" shall mean any account nominated by the Cardholder in respect of ATM. 1. The Card shall be issued by the Bank in the name of Accountholder(s) of any account except for Minors Accounts and Personal Accounts operated by joint signatures. The first Card on a joint account will be issued free of charge. Every additional Card applied for on the same account will be charged for as per Bank's Tariff .A maximum of two cards per account will be issued in case of joint accounts. 2. The Card is and will be at all times the property of the Bank and shall be returned to the Bank unconditionally and immediately upon the Banks request. The Bank reserves the right to cancel / withdraw at any time without prior notice or to renew its discretion, The ATM and / or any of the services thereby offered at any time. 3. Subject to the provision of paragraph 6, the Cardholder will be responsible for all transactions effected by the use of the Card, whether authorised by the Cardholder or not, and shall indemnity the Bank for all the loss or damage cause by any unauthorised use of the card or related PIN including any penal action arising there from on account of any violation of RBI guideline or Rules framed under FEMA or any other law for the time being in force 4. The Cardholder's account will be debited with the amount of any withdrawal transfer and / or other transactions effected by use of the Card. The Cardholders will maintain sufficient funds in the Cardholders account to meet any such transactions .The Cardholder shall not be entitled to overdraw the Cardholders account(s) with the Bank or withdraw funds by use of the card in excess of any overdraft limit agreed with the Bank. 5. The Personal Identification Number (PIN) is issued to the Cardholders for use with the Card and any number(s) substituted by the Cardholder for the purpose is for the Cardholder's personal use, strictly confidential and not transferable. PIN should not be disclosed to any third party under any circumstances or by any means whether voluntary or otherwise. The Cardholder should not keep any written record of any PIN in any place or manner which may enable a third party to use the Card .PIN shall not be used for any other purpose other than for transactions designated by the Bank. 6. The loss or theft of the card should be reported to the Bank immediately and confirmed in writing as soon a s possible. The Bank shall bear no liability whatsoever for any loss or damage arising from the issue of the card and related PIN howsoever caused. The Cardholder will be responsible for all transactions effected by the use of the Card until such notification. The Bank will debit the Cardholder's accounts with any cost incurred in issuing a replacement Card. Any cancellation of the facility within one year from the date of availment thereof and / or any replacements and renewals of or issue of an additional Card for joint accountholders, shall be conditional to payment of the charge as may from time to time be fixed by the Bank and be subject to terms and conditions in respect of the use of the Card which are in force.

7. Cash and / or cheques deposited with any ATM by the use of the Card will only be credited by ATM at the time of deposit only represents what the Cardholder purports to have deposited and will not be binding on the Bank. Cheques will be accepted for collection only and the proceeds will not be available until they have been cleared. 8. The Bank will not be liable for any failure to provide any service or to perform any obligation there under where such failure attributable (whether directly or indirectly) to any malfunction of the ATM or the Card, temporary insufficiency of funds, any dispute or other circumstances beyond its control. The Bank will not be liable for any consequential or indirect loss or damage, arising from or related to the loss / use of the Card. Any statements issued by the ATM at the time of deposit or withdrawal shall be conclusive unless verified otherwise by the Bank. Any such verification shall likewise be final and conclusive and the Cardholder shall make no objection thereto. 9. The Cardholder's account will be debited with such charges as the Bank may from time to time consider reasonable in respect of the Card provided that prior notice of such charges is given to the Cardholder. 10. The Bank reserves the right to disclose in strict confidence, to other institutions, such information concerning the Cardholder's account as may be necessary or appropriate in connection with its participation in any Electronic Fund transfer Network, or as The Bank may deem necessary or desirable in connection with the provisions of services and the enforcement of any right and or the performance of any obligations arising out of or in connection with the use or operation of the card. 11. Any notice hereunder sent by post will be deemed to have receive by the Cardholder within 7 days of posting to the address last notified in writing to the Bank by the Cardholder. Publication of change by such means as the Bank may consider appropriate will constitute effective notice to the Cardholder thereof. 12. The Bank's record for transaction processed by he use of the card shall be conclusive and binding for all purposes. 13. In the event the Cardholder decides to terminate the use of the Card, the Cardholder shall give the Bank not less than 7 days prior notice in writing and forthwith return the Card to the Bank and obtain a valid receipt thereof. Such termination shall also be deemed termination of the Cards facility accorded by the Bank to the cardholder. 14. The Bank shall be entitled to terminate the ATM facility with immediate effect and return the Card upon the occurrence of any of the following events: i. Failure to adhere to or comply with the terms and conditions herein set forth, or ii. An event of default under any agreement or commitment (contingent or otherwise entered in to with the Bank, or iii. The Cardholder becoming the subject of any bankruptcy, insolvency proceedings or proceedings of similar nature or iv. Demise of the Cardholder, or v. Closure of the Cardholder's account or failure to maintain the minimum average balance in the said account. 15. If more than one person signs or agrees to be bound by these terms and conditions, the obligation of such persons hereunder will be joint and several and, as the concerned may

require, words herein denoting the singular only will be deemed to include the plural. Any notice hereunder with any one such person will be deemed effective notification to all such persons. 16. The Bank reserves the right to add to, delete and / or vary any of these terms and conditions upon notice to the Cardholder .Use of the ATM after the date upon which any change to these terms and conditions is to have effect (as specified in the Banks notice) will constitute acceptance without reservation by the Cardholder of such change if the Cardholder does not accept any proposed change, the Card must be returned to the Bank prior to the date upon which such change is to have effect. 17. The Card and PIN will be sent to the cardholders mailing address. 18. If any accountholder by using the card draws an amount in excess of the balance available or overdraft limit permitted by the bank, the accountholder will pay to the bank on demand and unconditionally the entire amount overdrawn. However, this should not be constructed as an agreement either expressed or implied that the Bank is bound to grant any overdraft facility whatsoever. 19. As a security feature our computer system will invalidate any card which has not been used for affecting a withdrawal transaction within one year from the date of issue of the card or from the last withdrawal transaction. 20. All authorisations and powers conferred on the Bank are irrevocable. 21. The issue of International ATM Card will be subject to the following further conditions; a) The card shall be issued only to Non-Resident External (NRE) personal accountholder(s); b) The Bank shall debit the Cardholder's account with the amount of any withdrawal/transfer effected in currencies other than the domestic currency of issuance after conversion into the domestic currency of issuance at the prevailing exchange rate as determined by the Bank on the day of conversion; c) Cash withdrawals and transfers in Indian or NRE accounts shall be made solely for local disbursement. The cardholder shall be made solely for local disbursement. The Cardholder shall inform the Bank of his / their intention to withdraw cash for the purchase of shares / securities / commercial paper of Indian companies, or of immovable property in India, 3 working days prior to performing the transaction; d) Cash withdrawals performed by the cardholder in countries other than that in which the card was issued will be subject to a cash withdrawal fee as may be announced by the Bank from time to time. The availability of ATM services in a country other than that in which the card was issued is governed by the local regulations of the country in force. The Bank shall not be held liable if these services are withdrawn without notice thereof; e) The cardholder shall use the facility within the prescribed limits, only for bonafide purposes such as are laid down by the Reserve Bank of India, i.e. for personal expenses, education of children, gifts etc. The Cardholder shall indemnify the Bank against any violation of these conditions and shall undertake to regularly keep in touch with amendments

in this regard, if any, made by the Reserve Bank of India. The Cardholder is solely liable for his / their acts and deeds under FEMA and undertakes to pay gift tax, if any, on transfers made, to the tax authorities in India. f) The Bank shall be entitled to terminate the International card and call for its return if : i) The accountholder changes his / their status from Non-Resident to Resident India; ii) In the event of the Bank granting an overdraft / SIA facility on the cardholder's account. 22. These terms and conditions shall be governed and construed in accordance with the laws for the time being in force in the country in which the card was issued.

Internet Banking

Please click here to read the Terms and Conditions for Personal Internet Banking

Phone Banking
1. The PhoneBanking services provided by the Bank to all accounts cover i. Transfer of funds between any of the Accountholders' Accounts ii. Transfer of funds from any Savings Accounts of the Accountholder within any prespecified and agreed transfer limits to any Account pre-designated by the Accountholder ('the Designated Transferee Account') or any Payee pre-designated by the Accountholder for the purpose of receiving funds under the PhoneBanking services iii. Request for additional Fixed Deposit, renewal or withdrawal of Fixed Deposit iv. Enquiry on Savings Account balance, last transactions, exchange rates and deposit rates v. Requests for a) statements, b) cheque books, c) stop cheque vi. Reporting ATM / Debit Card loss vii. Payment of Accountholders own credit card bills viii. Such other types of banking or other services as the Bank may from time to time introduce 2. The Bank is authorised to act on the instructions of the Accountholder given by the Accountholder by telephone and the Accountholder agrees that the Bank is authorised to act on any such telephone instructions which the Bank, at its sole discretion, believes emanate from the Accountholder by the use of the PIN assigned to the Accountholder in relation thereto (or any number substituted by the Accountholder for that purpose) and the Bank shall not be liable for acting in good faith on telephonic instructions which emanate from unauthorised individuals or be under any duty to verify the identity of the person(s) giving telephone instructions purportedly in the name of the Accountholder. 3. The Accountholder shall ensure that there are sufficient funds (or pre-arranged credit facilities) in the Accountholders Accounts for the purpose of the telephone or other instructions and the Bank shall not be liable for any consequence arising out of the Bank's failure to carry out such instructions notwithstanding such inadequacy, the Bank may do so

without seeking prior approval from or notice to Accountholder and the Accountholder shall be responsible to repay with interest the resulting overdraft, advance or credit thereby created and for all related charges. The Bank will also not be liable for receipt of the transaction details by a third party on account of any negligence or omissions and commissions not attributable to the Bank. 4. a) The Bank shall not be responsible to the Accountholder for giving any information to be transferred or any Joint Accountholder regarding the details of the transactions performed through telephone instructions. b) The PhoneBanking facility will only be available if the operational instructions of the account are several in a joint account. 5. The Bank's record of the transactions processed by the use of PhoneBanking shall be conclusive proof and binding for all purposes. 6. In the event the Accountholder decides to terminate the use of PhoneBanking for whatever reasons the Accountholder shall give the Bank 7 day's prior notice in writing and obtain a receipt thereof. Such termination shall be deemed a termination of the PhoneBanking facility accorded by the Bank to the Accountholder. In an emergency the Bank will endeavor to stop the facility if the instructions are received over the phone or in writing, to safeguard the Accountholder's interests. The Bank however shall not be liable if the request of the Accountholder is not carried out immediately due to adverse situations. 7. The Bank shall terminate the PhoneBanking facility with immediate effect on occurrence of the following events : i. Failure to comply with the Terms and Conditions herein set forth; or ii. An event of default under any agreement or commitment (contingent or otherwise) entered into the Bank; or iii. The Accountholder becoming the subject of bankruptcy, insolvency proceedings or proceedings of a similar nature; or iv. Demise of the Accountholder; or v. Any other cause arising out of operation of law.

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