RBI, in turn, has constituted a small committee to look into why the banking sector has not been able to attract FDI and finalise the subsidiary norms. Foreign banks were asked to present their views. The committee has representation from RBI’s Department of Economic Analysis and Policy and the Department of Banking Operations and Development.
The committee is also looking at options that could make it more attractive for foreign banks to pick up stakes in private banks. Some of these options could be — doing away with the 10 per cent cap on voting rights in a private bank, giving much more autonomy to the acquiring bank and allowing a foreign bank to pick up 51 per cent as against 49 per cent, thereby giving it management control. But for the moment, the committee is looking at only the private banking sector.
A senior foreign banker said, “With local incorporation, it will become much easier to set up branches as licencing will no longer be needed. But the fact of the matter is that no foreign bank has a business model, which entails setting up a vast network of branches. Anyway, it is much easier to get branch licences now than it was a few years back. There are other ways and means of increasing our reach apart from setting up branches.”
The banker added, “When we talk about incentives, it has to be in financial terms. As of now, we do not see much financial benefits in local incorporation. If there are incentives, we would look at the option.”
After the “clarification” over FDI in private banks issued by RBI, only the ING group has moved ahead with a 49 per cent stake in Vysya Bank. The rest with ambitions are still awaiting operational guidelines pertaining to voting rights, management control and the like.