Foreign Banks Face Tough Entry / Expansion Route

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Mar. 31 – Indian financial policymakers have decided to adopt a reciprocity model for allowing foreign banks to set up branches or subsidiaries in India. They will also want foreign banks to list on the Indian bourses in order to have a presence in the Indian market.

The Committee on Financial Sector Assessment (CFSA) appointed jointly by RBI and the finance ministry announced a roll back of plans prior to the G20 meeting due to the financial crisis and consequent worldwide failure of major banks. Four years ago, the Reserve Bank of India had drawn a roadmap for allowing foreign banks wider access to the Indian market.

The CFSA in its report said that foreign banks could operate in the country either through branches or the subsidiary route, subject to the principles of reciprocity. It noted that while the branch licensing policy ought to be consistent with the country’s WTO commitments, licensing of branches would continue to be based on reciprocity, the Economic Times reported.

Furthermore, the CFSA maintained that foreign shareholding in subsidiaries should not exceed 74 percent and that those regulations that are applicable to private sector banks should also be applicable to foreign banks. Experts feel that European Banks have the most to benefit from the reciprocity model as they too have been open to Indian banks. American banks might have a tougher time due to stricter regulations at their end. The State Bank of India for instance had to wait for over 20 years to get a fresh branch license in the United States.