‘Options Galore For Foreign Banks In India, But It Is Worth The Wait’

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Mumbai, June 16: : The options for foreign banks in India have increased. They have much more flexibility vis-a-vis the nature of their operations in India.

Banks will take a choice on what option they would follow depending on their strategies and the way they operate in other markets. Some banks are comfortable operating as subsidiaries while some are comfortable with the merger and acquisition route.

Some on the other hand, may prefer to stick to the branch operation route since this would maintain a status quo and not entail some of the additional burdens like increase priority sector lending and adhering to the Companies Act.

This is the route that is likely to be followed by the smaller foreign banks who are niche players in the Indian banking sector.

A senior banker in a smaller foreign bank said: "It is really difficult to give an opinion about what to expect from the new rules for setting up subsidiaries by foreign banks. It will be up to individual banks to take a call on the route that they want to take. My personal assessment is that some of the bigger foreign banks in India, especially the ones who have indicated they may want to take up a 49 per cent stake in a private bank, may go in for a subsidiary. But the smaller foreign banks will not go in for this kind of a set-up and will prefer to continue operating the way they have been."

A top banker in a larger foreign bank said: "The option of setting up a subsidiary will have its own pros and cons. It will allow foreign banks to raise subordinate debt in the local market. But it would also mean adhering to the provisions of the Companies Act, changes in the quantum of directed lending and in the remuneration of senior bankers in tune with guidelines of the Indian law. It will be upto individual banks to use the subsidiary option. However, it may not affect the taking over of 49 per cent in an Indian private sector bank."

Foreign bankers are of the view that one of the major draws for setting up a subsidiary would have been the ability to set up branches without requiring a Reserve Bank of India (RBI) licence (like other Indian banks), but now getting a licence for a branch from the central bank has also become much easier.