The Reserve Bank of India (RBI) will soon come out with major reforms in the banking sector that will allow foreign banks to enter India in a big way and even take over domestic lenders, RBI Governor Raghuram Rajan has said.
“That is going to be a big opening because — one could even contemplate taking over Indian banks, small Indian banks and so on,” he told a Washington audience on Saturday.
The policy framework for the entry of foreign banks in India, Mr. Rajan added, would be unveiled in the next few weeks.
The banking sector reforms, in particular to those facilitating entry of foreign banks in India in a “big way” is part of the five pillars of reforms, including monetary policy framework, which the RBI is going to implement in the next few years, the RBI Governor said.
“For foreign banks, if you adopt a wholly-owned subsidiaries structure and we are coming up with details on that in the next couple of weeks, we will allow you near national treatment,” he said, quickly adding that there would be two conditions.
“One reciprocity — your country should allow the same to our own banks — and second you come through one route either you have a branch or you have a subsidiary; don’t do both.
That is primarily to simplify our regulatory function, but also to make it clean. But once you have a fully owned subsidiary, we would allow you a lot of freedom,” he said.
Acknowledging that price situation was an issue for the economy, Mr. Rajan said the ordinary monetary policy would be focused on containing inflation and not directed towards external sectors.
The RBI is scheduled to present the quarterly review of the monetary policy on October 29.