Commercial Banks May Soon Start Subsidiaries Without RBI Approval

RBI plans to simplify bank expansion and make rules easier under the 2025 policy framework.

What happens when a bank wants to start a new company for digital payments or leasing? Till now, it needed the Reserve Bank of India’s (RBI) approval. That could soon change.

The RBI plans to allow commercial banks to form subsidiaries without waiting for prior permission. This move is mentioned in the October 2025 Monetary Policy Report. It is part of the central bank’s plan to make expansion simpler and faster.

RBI Governor Sanjay Malhotra said during the policy briefing that India’s growth outlook is “softer and below expectations.” The change is meant to encourage more banking activity and support growth.

What is the New Subsidiary Rule?

The proposal is part of the RBI’s ongoing review of its regulatory framework for new ventures by banks. The goal is to make the system easier, especially for non-core areas like fintech, leasing, and advisory services.

According to RBI Notification No. 905 (2024), banks can invest up to 10 per cent of their paid-up capital and reserves in a single subsidiary and 20 per cent overall in all subsidiaries combined. These limits will stay the same. The difference is in the approval process.

Now, banks may not need RBI’s permission before forming subsidiaries in non-core areas. However, approval will still be needed for sensitive sectors like insurance or asset management.
 

This small change can help banks move faster. Instead of waiting months for approval, they can begin operations sooner. The RBI will still monitor these units after launch to ensure safety and compliance.

How Bank Subsidiaries Work

A subsidiary is a company partly or wholly owned by a bank to handle specific services, leasing, investment, or technology work. It’s allowed under Section 19(1) of the Banking Regulation Act, 1949, which lets banks form such entities with RBI permission.

The new subsidiary formation norms for banks in India will reduce waiting periods and paperwork. It’s meant to help banks explore new lines of work while keeping financial control intact.
 

Together, these show a steady move toward flexibility without changing the safety nets.

Earlier Policy Changes

In 2024, the Reserve Bank of India introduced new rules for Indian banks’ overseas branches. Around the same time, it also revised licensing norms for small finance banks. Both moves were meant to speed up approvals and cut compliance delays.

The latest proposal continues this direction. It focuses on removing unnecessary steps and helping banks react faster to market changes.

As LoansJagat reports in “Jana Small Finance Bank Starts Transition Towards Full-Fledged Universal Banking Operations”, small finance banks are now able to apply under easier licensing rules to become universal banks. 

Conclusion

The RBI’s policy change on bank subsidiaries may seem small, but it reflects growing trust in the banking system. By cutting down on long approval procedures, the regulator hopes to promote innovation while keeping control over risk.

With the economy still growing below expectations, easier rules for subsidiary formation could help banks expand more freely. The change is likely to give Indian banking a push in the right direction, steady, careful, and focused on growth.
 

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