The Hindu Business Line : RBI report defends policy on foreign banks

Chennai, Sept. 5 The Report on Currency and Finance released by the Reserve Bank of India makes a powerful case of defending the RBI’s policy with regard to foreign banks. Arguing that its procedures were non-discriminatory and very liberal by global standards, the report points out that

(i) India issues a single class of banking licence to foreign banks and does not require them to graduate from a lower to a higher category of banking licence over a number of years;

(ii) the single class of licence places them virtually on the same footing as an Indian bank and does not place any restrictions on the scope of their operations;

(iii) no restrictions exist on establishment of non-banking financial subsidiary in India for the specified 18 activities under automatic route by the foreign banks and their group companies;

(iv) deposit insurance cover is uniformly available to all foreign banks at a non-discriminatory rate of premium;

(v) the prudential norms applicable to the foreign banks for capital adequacy, income recognition and asset classification are the same as for Indian Banks

More liberal

It points out that although India has committed to allowing 12 branches of foreign banks in a year under the WTO agreements, it has been more liberal than the commitments. During the period 2003 to October 2007, India gave approval for 75 new foreign bank branches.

The report notes that the number of foreign banks in India increased from 24 in 1990 to 41 during 2000; although their number consequently declined to 29 in 2005 on account of merger between the Indian branches of foreign banks, merger of banks at a global level and closure of some foreign banks. The number of branches of foreign banks increased significantly from 138 in 1990 to 186 in 2000 and further to 272 during 2007.

Positive impact

The share of foreign banks’ in total assets of scheduled commercial banks improved from 5.6 per cent in 1990 to 7.5 per cent in 2000 and further to 8.0 per cent during 2007. The policy changes on entry of foreign banks in India implemented during 1995 and 2004 have had positive impact on their presence in the Indian banking industry, the report said. The regulations concerning foreign banks entry will be reviewed in April 2009.

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