Foreign Banks to reconsider growth plans for India
By Vaibhav Aggarwal
Apr 27, 2009
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The foreign lenders must be reconsidering their growth plans in India as RBI has put off the implementation of the second phase of roadmap to increase the presence of foreign banks in the country.

Foreign banks wanted to acquire controlling stake in private banks but the move by RBI has left a little scope for the MNC banks. Already the foreign banks operating in the country are struggling under the impact of the global financial crisis and moreover the decision by RBI has made the situation worse for them.

A senior banker at BNP Paribas India said, "Everything will get deferred. Even banks' expansion in the country would be put on hold."

Further he said that the de-licensing of ATMs norms does not mean that banks will continue with their expansion plans. "There is no incentive for the bank to incur costs in setting up ATMs because now anyone can go to any ATM of any bank and withdraw," he said.

Bankers feel that now the only way out for foreign banks to enhance their growth is to increase the coverage and the business per branch. "In a country which is largely under-banked, this (de-licensing of ATMs) allows banks to reach a much larger number of customers with basic banking facilities. While it is too early to comment on specific plans, Standard Chartered Bank is in an expansion mode in India, which is our second largest market. Consequently, you can expect us to take advantage of the relaxed rules," said Shyam Srinivasan, country head, consumer banking, Standard Chartered Bank.

RBI said it has deferred the second phase of roadmap for foreign banks in India until there is more clarity over the global economic scenario. RBI had said that the central bank would continue with the existing policy and procedures governing the presence of foreign banks in India.

The central bank had been issuing branch licenses to foreign banks that are more than the licenses mandated by the World Trade Organisation (WTO). "We have given approval for 12 branches a year for all banks put together as against eight mandated by WTO," said RBI Governor, D Subbarao.

Meanwhile a senior banker at a US based foreign bank said there is absence of platform for the foreign banks in the country. "One of the aspects being the inability of foreign banks to access alternate capital instruments that are available to Indian banks and higher tax rates applicable," he added.

However for the foreign banks, India will continue to remain a strategic market. "While the status quo has been maintained with regard to the form of presence of foreign banks, India continues to be a priority market in terms of its demographic and growth potential.

We are committed to enhancing our footprint in the country in line with evolving regulations," said Abhijit Sen, CEO of Citibank.

The decision by RBI regarding its deferred plans to allow the foreign banks to acquire controlling stake in private banks in India came at the annual credit policy report announced on April 21st.


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