RBI to set rules for foreign bank entry into India
The Indian central bank’s new subsidiary model means foreign banks may soon be able to reach the promise of doubling their market share. January 26, 2011 | Arush ChopraThe Reserve Bank of India (RBI), the country’s central bank, has proposed that overseas banks entering the country should set up local subsidiaries if their branches’ assets meet 0.25% of their total banking assets in the previous financial year. It has also proposed tightening norms on foreign lenders should their capital increase beyond a quarter of the total capital of the country’s banking system. The proposals seek to draw lessons from the global financial crisis and are aimed at limiting the size and systemic connectedness of foreign banks in the country’s financial system. “The post-crisis lessons support domestic incorporation of foreign banks,” the RBI noted, citing that subsidiaries being locally incorporated have their own capital base and their own local board of directors as against branches where parent banks are responsible for their liabilities. The model would be beneficial to banks themselves as it would offer greater operational flexibility, increased lending capacity and reduced corporate governance requirements, it said. However, there are also some risks, it noted. Parent companies may abandon their subsidiaries in troubled times, as was the case of the Argentine crisis of 1999-2002. The RBI also noted that “in many instances, international groups manage liquidity centrally and place it with various subsidiaries on a short-term basis, and in such cases the failure of a parent may result in the immediate failure of the subsidiary.” About 34 overseas banks operate in India currently, accounting for about 7.7 % of the total assets of commercial banks in the nation as of March, 2010. This is almost half of the allowance under existing WTO commitments and several are waiting in the wings to enter the world’s second most populous nation, where only 5 % of the 600,000 population clusters in the country have a commercial bank branch, according to the RBI. “For banks which are looking at doing significa... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: India, RegulationIndia,riskregulation, India,Regulation, Keywords:Foreign Bank Entry, RBI, Standard Chartered, Citigroup Foreign Bank Entry, RBI, Standard Chartered, Citigroup
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