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Morgan Stanley gets banking licence in India

business Updated: May 30, 2012 22:13 IST

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The Reserve Bank has given an in-principle approval to Morgan Stanley India to enter the commercial banking space, the US-based lender said on Wednesday.

"Morgan Stanley has received an in-principle approval for a banking licence from the Reserve Bank," a spokesman of the company said in an email, without giving more details.

So far, Morgan Stanley has been an investment banker in India and was the the top player in this space last year ahead of rivals including Goldman Sachs and Bank of America Merrill Lynch.

Following the 2008 credit crisis, RBI has been pushing for the subsidiary route for MNC lenders in the country against the branch banking route, citing easiness of regulatory control.

Entering the banking space will allow Morgan Stanley India to lend to corporates, whom it currently advises on takeovers.

According to sources, though the bank is keen on getting into banking, it may stay off retail banking at least to begin with, and will focus on treasury, foreign exchange and corporate banking activities.

Back home in the US, this leading Wall Street banker was converted into a bank holding company following the 2008 credit crisis, along with its larger rival Goldman Sachs, after being bailed out by the US Federal Reserve.

It can be noted that barring Citigroup, most of the Wall Street banks like JPMorgan and Bank of America, are not into consumer banking in the country given the tough competition from domestic players as well as stringent branch licensing norms.

Even Citi, which has been present in the country for years, has just a few bank branches.

One of the major handicaps of MNCs lenders in the country is the priority-sector lending norms which though at 32 per cent is lower than 40 per cent for domestic players, and rural branch norms in the country.

According to the existing norms, to become a full-fledged bank, Morgan Stanley will have to bring all para-banking activities, including private banking, under the bank.