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Cap on new foreign bank branches may be raised -- `Final ceiling open to revision'

Shaji Vikraman

Sarbajeet K. Sen

NEW DELHI, July 1

THE annual ceiling on the quota of new foreign bank branches that are to be permitted to commence operations in the country is likely to be raised to 15 from the present 12 branches during the forthcoming multilateral negotiations under the General Agree ment on Trade in Services (GATS).

A commitment to this effect is likely to be given by the Indian delegation during the negotiations. A high-level committee, headed by the Finance Secretary, Mr Ajit Kumar, which discussed the stand that India would take on the issue, has decided to not o nly hike the quota by 25 per cent, but would also be open to further upward revision during the negotiations.

``The committee is working on an internal figure of 15. However, that figure too is flexible and open to revision,'' top officials in the Banking Division of the Finance Ministry told Business Line. Among others, the high-level committee consists of top officials of the Banking Division, Reserve Bank of India (RBI), Ministry of Commerce and the Ministry of External Affairs.

Though different Departments and committees of the Government are working on finalising the country's stand on the several issues that are to be taken up during the negotiations, the Ministry of Commerce which is collating the views would be ultimately l eading the Indian delegation.

Officials felt that a commitment on an upward revision of the ceiling of new foreign bank branches would not be a problem since the 12-branch limit is very often breached from year to year.

Moreover, a hike in the ceiling would in no way affect the overall cap on assets that all foreign banks taken together are not allowed to exceed. Under the present norms, the Government and the RBI are required to ensure that the total banking assets of the country in the hands of the foreign banks do not exceed 15 per cent of the total banking assets.

Officials said that there is still a long way to go before the ceiling of 15 per cent of assets in foreign bank hands is reached, with the total assets in their hand standing at around seven per cent at present.

They said that the country's stand on the foreign bank branches was one among the various banking issues on which the Government would be finalising its negotiating position.

``We are finalising our stand of various issues based on the likely demands that other countries may place on us,'' a top Government official said. These include examining the rules, regulations and procedures operative in the financial sector which are out of sync with the requirements set under the World Trade Organisation (WTO) regime.

However, officials pointed out that the exact nature of the demands that are to be made by other countries would be known only at the negotiating table.