Overhaul for foreign banks

  • Mahua Venkatesh, Hindustan Times, new delhi
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  • Updated: Dec 28, 2010 21:54 IST

The Reserve Bank of India (RBI) is set to open the doors for foreign banks to expand in the country, but is likely to link it to the policies of the country from which the bank desiring to expand in India hails.

Government sources told Hindustan Times that the central bank is likely to take into consideration the principle of “reciprocity” while allowing foreign banks to set up branches or subsidiaries in India.

On current indications, European banks could gain while US banks may suffer as they have different regulatory approaches towards Indian banks. “The principle of reciprocity will be a determining factor in allowing foreign banks to set up branches in India. This will be clearly specified in the new policy,” a top government official, who did not wish to be identified, said.

The government is examining the new policy on foreign banks that the RBI has drafted. The new policy is expected to be unveiled next month. The policy was originally scheduled to be rolled out in 2009 but had was deferred in wake of the global financial crisis that roiled the world.

India and China have already begun the process of “reciprocity” agreement that would allow Chinese banks to set up branches in India.

At present, there are no banks from China operating branches in India, though Taiwan-based Chinatrust has an operation. In contrast, State Bank of India (SBI), Bank of Baroda, Bank of India and Canara Bank have a branch each in China.

China’s “big four” government-owned commercial banks — Bank of China, the China Construction Bank, the Industrial and Commercial Bank of China and the Agricultural Bank of China — could be among the ones to set up branches in India.

Wall Street icons including Goldman Sachs and Morgan Stanley are among those who have applied for licences. The RBI has already set up a panel to screen applications and the credentials of banks.


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