Foreign banks' expansion plans in India will have to wait more as Finance Minister P Chidambaram removed a key clause, which would have allowed foreign banks to set up wholly owned subsidiaries, before getting the Banking Laws (Amendment) Bill passed in Lok Sabha.

The key clause would have allowed the Reserve Bank of India (RBI) to waive capital gains tax or stamp duty on their conversion from a branch mode of operation to a wholly owned subsidiary.

It may be noted here that all the 41 foreign banks that are currently operating in India are on the branch mode.

The most important entry route foreign banks were contemplating was that of wholly owned subsidiary.

The concerned clause could not find its way into the final Banking Laws (Amendment) Bill cleared by Lok Sabha on Tuesday. But, it is widely expected that the government would make the required amendments to the Indian Stamp Duty Act and also the Finance Bill for 2013-14.

The Bill's passage has paved the way for existing banks to consolidate, and enabled the central bank to issue new banking licences. It also increased shareholders' voting rights from 10 per cent to 26 per cent. In addition, it allowed the RBI to supersede boards of private sector lenders.

The Banking Laws (Amendment) Bill is one of the ruling Congress' key reform measures.