Foreign entrants will improve banking

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: The Indian economy has achieved high growth in an environment of macroeconomic and financial stability. The period has been marked by broad-based economic reforms that have kindled every segment of the economy. In 2005, the Reserve Bank of India (RBI) announced a roadmap for foreign banks in India.

The liberalisation policy stated that foreign bank expansion in India would proceed in two phases. In Phase I, RBI promised to go beyond the existing commitment of 12 new branches for foreign banks in a year, acquisition of private banks identified for restructuring by the regulator and allowing foreign banks to establish a presence by way of wholly owned subsidiaries or conversion of existing branches into wholly owned subsidiaries. In Phase II, which commences in April 2009, foreign banks could contemplate mergers & acquisitions with private banks and foreign banks’ subsidiaries that had completed a prescribed minimum period of operation, would be allowed to list on Indian exchanges and their equity subscribed by resident Indians.

According to the roadmap, the regulator would consider treating wholly owned subsidiaries of foreign banks in India in a similar manner as Indian banks. This would essentially mean that the single class of licence would place them virtually on the same track as Indian banks and would not place any restrictions on the scope of their operations, either on the wholesale or retail segment. The second phase, however, would commence after “a wholesome review of the first phase”.

Foreign banks have brought the latest technology and banking practices to India. They have helped make Indian banking more competitive, comprehensive and proficient. They have integrated access to the banking, financial and commodities market, either directly or through the NBFC route. For many years now, foreign banks in India have seamlessly provided various other services like capital market products, wealth management, correspondent banking and trade financing along with normal banking services.