The Reserve Bank of India is expected to relax norms soon allowing opening of more foreign banks, Commerce Secretary S. R. Rao said in New Delhi on Monday.
“The RBI is soon, I believe, is going to announce a progressive policy for permitting opening of more foreign banks,” Mr. Rao said speaking at a CII function on ‘Driving South Asia economic integration”.
“I do hope that with far more regional integration of economies and commerce, the market forces themselves will demand that each of the central banks of sovereign nations take similar calls and I am sure the time is propitious and it is going to happen sooner than later,” he added. At present, expansion of foreign banks in India is on a reciprocal basis.
India and Pakistan are negotiating issues with regard to opening of bank branches in each other’s territory to facilitate trade and commerce. As per the World Trade Organisation agreement, India allows opening of 12 branches of foreign banks in a year. Last year, the RBI in a discussion paper suggested that foreign banks should be incentivised to operate in India as wholly-owned subsidiaries, as against the present system of having presence through branch network.
“On balance, the subsidiary model has clear advantages over the branch model despite certain downside risks. There may be a need to incentivise the subsidiary form of presence of foreign banks,” the paper added. At present, there are about 34 foreign banks operating in India, with five major banks, including StanChart, HSBC, Citibank and Deutsche, accounting for over 70 per cent of the total asset size of overseas lenders in the country.
Mr. Rao further said that the government would be announcing sops for exporters in a couple of days to provide them a cushion in the wake of declining exports and global slowdown. The Director-General of Foreign Trade (DGFT) in the Ministry has recently completed a review of different export sectors, including engineering, gems and jewellery, handicraft and leather. The problem seems to be more for the employment-oriented sectors such as handicraft and textiles. Bulk of India’s exports of about $300 billion go to the U.S. and Europe which have been facing demand slowdown. Both these markets account for about one-third of the country’s total shipments.