India's banking sector now meets international standards on asset classification, income recognition, and transparency and disclosure. Its retail sector is extensive and efficient, with online and phone banking making business possible throughout the country. India is widely regarded as one of the leading capital markets in the developing world, and it is internationally respected because of its transparency with respect to price information. The country also has well-developed and well-regulated equity, derivatives, exchange, debt, and commodity futures markets. This demonstrates the country's appetite for investment and its market maturity and provides the financial infrastructure necessary for growing and ultimately floating a business. Wherever your business is based, you will be well served by banks in India. The country has an extensive network of banks with branches and ATMs serving even some of the country's most remote rural areas.
Although the sector remains dominated by the State Bank of India and the Punjab National Bank, the private sector has made great strides in recent years. Most foreign investors choose to work through their own home bank if it has an operation in India. This can make it easier to set up your Indian operation, and borrowing can be secured in India as part of a global limit-for example a global borrowing limit of US$1 billion may have US$100 million earmarked for draw-down in India.
Your bank will make all the necessary arrangements for transferring money. There are limits on personal transfers, but none on transferring money from India for acquisitions overseas. For other transfers, the Reserve Bank of India (RBI) must be informed of the purpose, and the money must be transferred through authorized dealers-usually your bank. Borrowing money from international markets for your Indian business is subject to a limit of around US$50 million, but the RBI can grant approval for larger amounts. Almost all of India's top banks, including the State Bank of India, offer internet banking to allow you to check balances, make payments, and transfer funds between accounts. Some offer wireless banking from your mobile phone. The bank will issue secure personal identification numbers that allow you to make transfers and pay bills via SMS message. As a foreign investor wanting to establish an Indian operation, you have several options, from branch offices through to wholly owned businesses. Each has advantages and disadvantages; identify your main purpose and projected length of business before focusing on one type of strategy.
If you want to get a clearer picture of Indian market conditions before committing, establish a "liaison office." This cannot conduct direct business, but can promote the parent company's goods and services, and promote collaboration with companies in India. Liaison offices must have prior approval from the Reserve Bank of India (RBI). Approval is typically granted for three years before renewal is required. If you wish to execute a specific project, the best option is to set up a "project office," which does not need RBI approval, but must close as soon as the project is completed. A longer-term option is to open a "branch office", from which you may conduct import and export business, offer consultancy, render IT and software services, operate airlines and shipping services, and manufacture in Special Economic Zones (SEZs).
One of the best ways to escape the restrictions placed on branch and liaison offices is to establish a subsidiary, in the form of a private company established under domestic Indian law. The subsidiary is freer to conduct business in India, and can repatriate profits without approval, but there are restrictions on foreign exchange transactions and income tax. Joint ventures offer the best opportunity for benefiting from local knowledge and talent, through your Indian partner's local market share, experience, contacts, and distribution network. If the venture is approved by the RBI, and investment enters India through official transfers, capital and dividends can be repatriated overseas without further approval.
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