RBIs branch authorisation policy upsets foreign banks

Written by Mahalakshmi Hariharan | Hemang Palan | Mumbai | Updated: Oct 30 2009, 06:03am hrs
Foreign banks are upset about Reserve Bank of India excluding them from its new branch authorisation policy, which allows scheduled commercial banks to freely expand into small towns.

We are disappointed by not being a part of this authorisation policy. We would love to open more branches across the country and spread our businesses, said Citigroup CEO South Asia Mark Robinson.

As part of its quarterly review of monetary policy on Tuesday, the central bank had announced it was allowing domestic banks to freely open branches in Tier-3 to Tier-6 citiesthat is, towns with a population of up to 50,000. However, RBI stipulated that at least a third of new branches in these towns would have to be in under-banked districts of under-banked states.

Another foreign banker, who did not wish to be named, said while their exclusion was disappointing, they expect things will change in the future. RBI is liberalising in phases, and we hope that ultimately banksboth MNC and domesticwill benefit from complete deregulation in this segment, said the banker.

Concurring with that sentiment, a source with another foreign bank said, RBI has done away with licensing for ATMs in the first half of the year for both domestic and MNC players and is now focusing on the branch licensing process. As expected, it focused on rural centres for domestic banks. Urban centres and MNC banks have not been included in the liberalisation, which may happen at a later stage.

Speaking to FE, RBI governor D Subbarao said, Foreign banks in India have been excluded as mainly we have to follow World Trade Organisation (WTO) obligations and also abide by the principle of reciprocity while authorising them new branches.

A working group chaired by P Vijaya Bhaskar that was set up by the central bank had also recommended that the branch authorisation policy for foreign banks remain unchanged until a review of the road map for them. The opening of branches in Tier-1 and Tier-2 cities will continue to require prior authorisation, RBI has said.