The Hindu Business Line : Foreign banks looking beyond metros

Chennai, Sept 7 The Reserve Bank of India would like foreign banks to get a flavour of semi-urban India and the rural hinterland. Going by the statistics provided in the RBI’s annual report, it appears that foreign banks are being gently nudged away from metros, when they apply for permission to open a new branch.

The branches of foreign banks that have been approved between July 2006 and June 2007 are mostly in smaller towns and tier-2 and tier-3 cities. Of the 13 branches for which permission was given, only one branch belonging to Shinhan Bank has been allowed in New Delhi.

Smaller cities

Hong Kong and Shanghai Banking Corporation (HSBC) received approvals for three branches in Raipur, Jodhpur and Lucknow. ABN Amro got approvals for branches in Kolhapur, Salem, Udaipur and Ahmedabad. Barclays Bank received approval for branches in Kanchipuram and Bangalore.

Most foreign banks follow a strategy of first setting up base in metros – Mumbai, New Delhi, Kolkata and Chennai. Then, in the next stage, they move to the mini-metros such as Bangalore, Hyderabad, Pune and Ahmedabad. Over the last few years, some banks have talked about expanding their reach beyond the conventional circuits of these eight places.

Foreign banks in India have got approval from the Reserve Bank of India to open 10 branches and seven representative offices during the July 2006- June 2007 period. In the calendar year 2006, the RBI issued approvals for opening 13 branches of foreign banks in India. Under the WTO agreements, India is required to allow the opening of 12 foreign branches every year.

Share in business

There are currently 29 foreign banks operating in India with 268 branches. There are also 34 other foreign banks that have representative offices.

The share of foreign banks in the business done in the country (deposits and advances) has been hovering between 5 and 7 per cent during the past decade.

When asked for her comments on this issue in a recent interview with Business Line, Ms Naina Lal Kidwai, Country Head, HSBC, remarked, “It is minuscule. We are mosquitoes on an elephant’s back!”

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