The Indian central bank has recently held a series of meetings with chiefs of public sector banks which have branches overseas. According to sources, the RBI has asked the banks to adopt a three-pronged approach to recast their overseas operations: avoid competition among Indian banks operating abroad, infuse fresh capital whereever it is required and prune the exposure to Indian assets.

A high-level RBI team, led by deputy governor SP Talwar, met the FSA brass in London last month on the contentious issue of closure of Indian bank branches in the UK.

Among Indian banks, Bank of Baroda (BoB) has the maximum number of branches in the UK, followed by Bank of India (BoI) and the State Bank of India (SBI). Besides, CanaraBank, Syndicate Bank, United Commercial Bank also have branches in the UK.

According to sources, the RBI discussion focussed on operations of Indian banks' branches in other countries as well. For instance, Indian Bank has one branch in Singapore which has now come under the glare of the Singapore monetary authority with the Chennai-based bank posting a negative capital adequacy ratio following the erosion of its entire networth.

"The government may be required to offer a sovereign guarantee to keep the Indian Bank branch going in Singapore. The other alternative is closing down the branch," a senior banker said.

The FSA--an independent supervisory authority of the financial system in the UK, including the insurance sector and capital markets--forced Uco Bank to close down one of its UK branches last year. It has had a detailed investigation of the "business risk" and "control risk" of Indian banks operating in the UK.

The licensing norms of the 20-and-odd Indian bank branches in the UK came under theFSA microscope against the backdrop of the delay in India passing the Fema Bill and deteriorating asset quality. The supervisory authority's areas of concern also included Indian banks' exposure to priority sector lending, the lack of succession plans and lower capital adequacy ratio.

It was planning to pare the India exposure limit of Indian bank branches from the present limit of up to three times net-owned funds (NOF) to two times NOF. However, with the visit of the high-level RBI team the scenario has changed and the FSA will not take any unilateral decision in regard to Indian banks' UK operations.

There has been a consensus among Indian banks on the need for diversifying the asset portfolio. "Traditionally the focus has been on India-related business. As a matter of prudence, the focus needs to be shifted and we must pare exposure to Indian assets in the medium term," said one bank chairman which has considerable presense abroad.