The Reserve Bank of India may not issue a banking licence to the Union Bank of Switzerland to commence operations in the country.
According to a source close to the development, the RBI is averse to issuing a banking licence to UBS following the role of group firm, UBS Securities Asia Ltd, in the stock market crash of May 17 last year. A final view on the matter was, however, yet to be taken, the source added.
UBS was reported to have applied for a banking licence a few months back.
UBS Securities was barred from issuing offshore derivative instruments in the Indian securities market for a year, according to a order of the Securities Exchange Board of India issued on May 17.
The order stated said that UBS Securities sold shares worth Rs 1.8 billion (Rs 18 million) on behalf of hedge funds in the cash market, thus pulling down prices.
Sources added that the RBI was critical of the role of participatory notes as the origin of investors could not be ascertained, thus violating the "Know Your Customer" norms.
Moreover, there was no way of monitoring these funds, which are highly speculative and short-term debt creating investments.
The RBI governor has been supportive of foreign inflows but in the form of direct investments giving rise to productive growth.
Thus, the RBI may wait for further systemic stability before allowing the bank to start off its operations, the source said.
Besides being strictly vigilant of the role of PNs, the RBI has imposed a cap on mutual funds interested in investing in overseas instruments.
The central bank has also expressed concerns about offshore funds floated by mutual funds.
The worry was primarily on account of mutual funds getting funds through participatory notes where the identity of the investor could not be revealed.
