Role of Frgn Banks Final

8/2/2019 Role of Frgn Banks Final

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Role of foreign banks in Indian banking scenario

Bachelor of Commerce

(Banking & Insurance)

Semester V

(2011-12)

Submitted

In Partial Fulfillment of the requirements

For the Award of Degree of Bachelor of

CommerceBanking & Insurance

By

Mohit K. Makhija

SMT.M.M.K. COLLEGE OF COMMERCE AND ECONOMICS

BANDRA (W)

MUMBAI-50


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SMT.M.M.K. COLLEGE OF COMMERCE AND ECONOMICS

BANDRA (W)

MUMBAI-50

CERTIFICATE(20112012)

This is to certify that MOHIT K. MAKHIJA of B.com (Banking & Insurance)

Semester V (2011-12) has successfully completed the project on Role of

foreign banks in Indian banking scenario under the guidance ofDR. A.C.

VANJANI.

Date: - 10th October, 2011.

Place: - MUMBAI

(Prof. Mr. Vishal R Tomar) (Dr. Ashok Vanjani)

Course Co-ordinator Principal

(Prof. Mr. Ashok Vanjani)

Project Guide External Examiner


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DECLARATION


I, Mr. MOHIT K. MAKHIJA the student of B.Com (Banking & Insurance)

Semester V (2011-12) hereby declare that I have completed the project on

Role of foreign banks in Indian banking scenario successfully.

The information submitted is true and original to the best of my knowledge.

Thank you,

Yoursfaithfully,

MOHIT K. MAKHIJA


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ACKNOWLEDGEMENT

To make any such in depth project without the help of anybody is not at allpossible. Moreover teamwork is more beneficial than the isolation. In otherwords there are so many external people who directly or indirectly help us inour project.

First of all I am very grateful to our principal Dr. A. C. Vanjani andcoordinator Mr. Vishal Tomar for their guidance whenever we called for andfor giving me such an informative topic. I have always been welcomed withvery pleasant smile and full co-operation by them.

Working on the project is hard, need hard work and concentration but I made itpossible with the support which I had received from those around me. I amthankful to all the faculties of our college for giving me guidanceencouragement and right path to work on it. I thank everybody who has directlyor indirectly helped us in this project to make it successful. I am grateful to thewhole staff of MMK College of commerce and economics, as they co-operatedwith us in preparation of our project.

MOHIT K. MAKHIJA


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DECLARATION


I the undersigned Dr. ASHOK VANJANI, have guided Mr. MOHIT K.

MAKHIJA for her project, she has completed the project Role of foreign

banks in Indian banking scenario successfully.

I hereby, declared that information provided in this project is true as per the best

of my knowledge.

Thank you,

Yours faithfully,

Dr. ASHOK VANJANI


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Index

Sr no. Particulars

1. Introduction

2. Foreign Banks Branches in India

3. The need for foreign banks

4. WTO and India about foreign banks operations

5. List of Foreign Banks having Representative Offices

6. RBI favours subsidiary route for foreign bank expansion

7. Foreign banks set to play bigger role

8. Roadmap for Presence of Foreign Banks in India

9. RBI roadmap: Foreign banks get to eye private banks

10. PROS AND CONS OF FOREIGN BANKS

11. Rough road ahead for foreign banks setting up units here12. Foreign banks keen to strengthen foothold in India

13. Headcount of foreign banks down over 6% in 2010: RBI14. RBI may make it mandatory for foreign banks to adopt WOS

(wholly owned subsidiary) route

15. How foreign Banks can Enter in India

16. India to Audit Foreign Banks Operations Prior to Permitting New

Branches


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17. Proposed Framework for Presence of foreign banks in India

18. Measures to contain dominance of foreign banks

19. Conclusion

20. Bibliography


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A Role of Foreign Banks in Indian

banking scenario.

Introduction

Foreign Banks operating in India are banks of other countries having their

branches in India. At present there are about 37 such banks having a total of

about 320 branches in most of the big cities of the country. These Foreign

Banks have a flourishing business and earn large profits. Indian Banks also have

their branches in other countries, and they, too, are doing well.

A large number of foreign banks are now keen on opening shop in India, when

private banking space is expected to open up for foreign players. Foreign Banks

in India always brought an explanation about the prompt services to customers.

After the set up foreign banks in India, the banking sector in India also become

competitive and accurative.

A new rule announced by the Reserve Bank of India for the foreign banks in

India in this budget has put up great hopes among foreign banks which allow

them to grow unfettered. Now foreign banks in India are permitted to set up

local subsidiaries. The policy conveys that foreign banks in India may not

acquire Indian ones (except for weak banks identified by the RBI, on its terms)

and their Indian subsidiaries will not be able to open branches freely.

There are 47 foreign banks having representative offices in India. The Banco

Bilbao Vizcaya Argentaria, Spain's second largest bank; and National Australia

Bank Ltd., are some of the banks that would like to convert their representative

offices into branches.


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Standard Chartered Bank, the oldest foreign bank that came to India 150 years

ago, now operates the maximum number of branches, 96. It is followed by

HSBC, which entered India in 1867, with 50 branches. Citibank has 42

branches and the Royal Bank of Scotland N.V. with 31.


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Foreign Banks Branches in India as on June

30, 2011

Sr no. Name of the bank Country ofincorporation

No. ofbranches inIndia.

1 AB bank Ltd. Bangladesh 12 The Royal Bank of

Scotland N.VNetherlands 31

3 Abu Dhabi CommercialBank Ltd.

UAE 2

4 American Express BankingCorporation

USA 1

5 Antwerp Diamond BankN.V.

Belgium 1

6 Bank InternasionalIndonesia

Indonesia 1

7 Bank of America USA 58 Bank of Bahrain & Kuwait

BSCBahrain 2

9 Bank of Ceylon Sri Lanka 110 Bank of Nova Scotia Canada 511 Barclays Bank Plc. United Kingdom 1012 BNP Paribas France 813 Credit Agricole Corporate

&Investment Bank

France 6

14 Chinatrust CommercialBank

Taiwan 1

15 Citibank N.A. USA 4216 DBS Bank Ltd. Singapore 12

17 Deutsche Bank Germany 1618 HSBC Ltd Hong Kong 5019 J.P. Morgan Chase Bank

N.A.USA 1

20 JSC VTB Bank Russia 1


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Sr no. Name of the bank Country ofincorporation

No. ofbranches inIndia.

21 Krung Thai Bank Public

Co. Ltd.

Thailand 1

22 Mashreq Bank PSC. UAE 223 Mizuho Corporate Bank

Ltd.Japan 2

24 Oman International BankSAOG

Sultanate of Oman 2

25 Shinhan Bank South Korea 326 Societe Generale France 227 Sonali Bank Ltd. Bangladesh 2

28 Standard Chartered Bank United Kingdom 9629 State Bank of Mauritius Mauritius 330 The Bank of Tokyo-

Mitsubishi UFJ Ltd.Japan 3

31 UBS AG Switzerland 132 FirstRand Bank Ltd South Africa 1

33 United Overseas Bank Ltd Singapore 134 Commonwealth Bank of

AustraliaAustralia 1

35 Sberbank Russia 136 Credit Suisse A.G Switzerland 137 Australia and New Zealand

Banking Group Ltd.Australia 1

320


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The need for foreign banks in India

Some economists are of the view that Foreign Banks should, not be allowed to

operate in the country. But permission to such banks to operate in the country is

unavoidable on the basis of reciprocity. This is certainly the view of the Reserve

Bank of India, and it is justified by the success of Indian Banks operating in

foreign countries.

Indian Banks have been rapidly expanding their overseas operations. Between

1975 and 1978, the number of offices of Indian Banks in foreign countries had

increased by 48, from 77 to 125. This is in contrast with the stagnant number of

Foreign Bank Offices in India. As a consequence, the growth of business of

Indian Banks has been phenomenal as compared to that of the branches of their

foreign counterparts in India. Deposits and advances of Indian Banks abroad

have increased by 14% and 18% respectively, whereas the corresponding

figures of Foreign Banks in India are 28% and 30% respectively. In terms of

remittances of the present banks also, Indian banks are ahead. In 1976, they

remitted Rs. 90 millions to India, where their counterparts remitted Rs. 70

millions only.

Indian Banks abroad are involved in many new banking activities. State Bank of

India and Bank of Baroda, the two leaders in the sphere, are raising foreign

currency funds, for both private and public sector concerns. In addition, these

banks are funding many joint ventures in South East Asia. For instance, SBI is

funding joint ventures in Singapore, Indonesia and Malaysia. The Bank has

arranged finances to the tune of $ 750 million dollars.


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We can see clearly that Indian Banks are indeed generating a lot of business

overseas. At present they are operating in as many as 26 countries of which only

eight countries have their own bank branches in India. Thus, the question of

reciprocity does indeed have relevance, because, if we want to seek profitable

opportunities overseas, we must be prepared to open our own gates also. In

short, the operation of foreign banks in India is fully justified. It is in our

national interest.

WTO and India about foreign banks

operationsIndia had committed to the World Trade Organization (WTO) in 1997 to give

12 new branch licenses to foreign banks every year, including those given to

new entrants and the existing players. However, the Indian regulator has all

along been allowing foreign banks to open more branches, going beyond its

commitment to WTO. In fact, till October 2007, it has given its nod to 75 newforeign bank branches and many more ATMs (which do not come under WTO

norms).

Standard Chartered Bank, the oldest foreign bank that came to India 150 years

ago, now operates the maximum number of branches, 96. It is followed by

HSBC, which entered India in 1867, with 50 branches. Citibank has 342

branches.

Despite their growing presence, foreign banks still have a very small market

share in the Indian banking industry6.11% of total deposits and 6.83% of

total loan advances. But their returns from Indian operations are far higher than

those of their local counterparts. For instance, the average net profit per branch

for foreign banks in India was Rs11.99 crore last year against Rs33 lakh for the

public sector banks that account for close to 70% of the industry. The return on


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assets for foreign banks last year was 1.65% and return on equity, 14.02%. The

comparable figures for public sector banks were 0.82% and 13.62%. Now you

know why foreign banks are ready to walk the extra mile to do business

anywhere in India

The Reserve Bank of India would like foreign banks to get a flavour of semi-

urban India and the rural hinterland. Going by the statistics provided in the

RBI's annual report, it appears that foreign banks are being gently nudged away

from metros, when they apply for permission to open a new branch.

The branches of foreign banks that have been approved between July 2006 and

June 2007 are mostly in smaller towns and tier-2 and tier-3 cities..


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Smaller cities

Hong Kong and Shanghai Banking Corporation (HSBC) received approvals for

three branches in Raipur, Jodhpur and Lucknow. ABN Amro got approvals for

branches in Kolhapur, Salem, Udaipur and Ahmedabad. Barclays Bank received

approval for branches in Kanchipuram and Bangalore.

Most foreign banks follow a strategy of first setting up base in metros

Mumbai, New Delhi, Kolkata and Chennai. Then, in the next stage, they move

to the mini-metros such as Bangalore, Hyderabad, Pune and Ahmedabad. Over

the last few years, some banks have talked about expanding their reach beyond

the conventional circuits of these eight places.

Foreign banks in India have got approval from the Reserve Bank of India to

open 10 branches and seven representative offices during the July 2006- June

2007 period. In the calendar year 2006, the RBI issued approvals for opening 13

branches of foreign banks in India. Under the WTO agreements, India is

required to allow the opening of 12 foreign branches every year.


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List of Foreign Banks having Representative

Offices in India as on June 30, 2011

Sr. No. Name of the

Representative

Office

Country of

incorporation

Centre Date of

opening

1.CommonwealthBank

Australia Bangalore 7.11.2005

2.National BankAustralia Ltd

Australia Mumbai 3.11.2006

3.Westpac BankingCorporation

Australia Mumbai 1.10.2007

4.Raiffeisen ZentralBank OsterreichAG

Austria Mumbai 1.11.1992

5.Fortis Bank Belgium Mumbai 6.10.1987

6.K.B.C. Bank N.V. Belgium Mumbai 1.02.2003

7.Royal Bank ofCanada

Canada Mumbai 1.2.2008

8.Emirates BankInternational

Dubai Mumbai 16.06.2000

9.Credit Industriel etCommercial

France New Delhi 1.04.1997

10.Natixis France Mumbai 4.01.1999

11.Bayerische Hypound

Vereinsbank

Germany Mumbai 12.07.1995


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Sr. No. Name of the

Representative

Office

Country of

incorporation

Centre Date of

opening

12.DZ Bank AGDeutsche ZentralGenossenschaftsBank


13.

Landesbank Baden

Wurttemberg


14.Commerzbank Germany Mumbai 23.12.2002

15.NorddeutscheLandesbankGirozentrale(NORD LB)


16.HSH NordbankAG


17.BayernLB Germany Mumbai 15.4.2008

18.DEPFA Bank Ireland Mumbai 9.3.2007

19. Intesa SanpaoloS.p.A Italy Mumbai 1.11.1988

20.Uni CreditoItaliano

Italy Mumbai 1.08.1998

21.Banca Populare DiVerona E Novara



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Sr. No. Name of the

Representative

Office

Country of

incorporation

Centre Date of

opening

22.BPU Banca Banche PopolariUniteS.c.r.l


23.Monte Dei PaschiDi Sienna


24.Banca Popolare diVicenza


25.Hana Bank South Korea New Delhi

26.Everest Bank Ltd. Nepal New Delhi 24.03.2004

27.Caixa Geral deDepositos

Portugal MumbaiGoa (EC)

8.11.1999

28.DnB NOR Norway Mumbai 27.8.2008

29.Vnesheconombank(Bank for ForeignEconomic Affairs)

Russia New Delhi 1.3.1983

30.Promsvyazbank Russia New Delhi 25.04.2006

31.

Woori Bank South Korea New Delhi 10.2007

32.Banco de SabadellSA

Spain New Delhi 2.08.2004

33.Banco BilbaoVizcaya Argentaria

Spain Mumbai 2.4.2007

34.

Hatton National

Bank

Sri Lanka Chennai 1.01.1999


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Sr. No. Name of the

Representative

Office

Country of

incorporation

Centre Date of

opening

35.SvenskaHandlesbanken

Sweden Mumbai 1.08.2006

36.SkandinaviskaEnskilda Banken AB

Sweden New Delhi 1.02.2008

37.ZurcherKantonalbank

Switzerland Mumbai 27.06.2006

38.

The Bank of New

York

USA Mumbai 27.10.1983

39.Wachovia Bank N.A. USA Mumbai 1.11.1996

40.Mega Internationalcommercial Bank

Taiwan Mumbai 2.12.2008

41.KfW IPEX BankGmbH


42.Korea ExchangeBank

South Korea New Delhi 27.8.2008

43.Duncan Lawrie Ltd United Kingdom Kolkata 30.10.2009

44.First Gulf Bank UAE Mumbai 26.10.2009

45.Toronto DominionBank

Canada Mumbai 16.11.2009

46.CIMB Bank Berhad Malaysia Mumbai 23.11.2010

47.Sumitomo MitsuiBanking Corporation

Japan New Delhi 28.4.2011


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RBI favours subsidiary route for foreign

bank expansion

Mumbai: Six years after laying down the road map for foreign banks in India,

the countrys central bank is set to allow them a bigger role in the worlds

second fastest growing major economy.

The Reserve Bank of India (RBI) invited public comments on a discussion

paper that suggested almost doubling the role of foreign banks in the Indianbanking system, saying it will incentivize foreign players to operate through

the wholly owned subsidiary route in the country. RBI had given until 7 March

for comments.

All new overseas entrants in the Indian banking space will have to locally

incorporate themselves, and existing players, particularly the systemically

important ones, will be encouraged to go in for local incorporation and act as

subsidiaries of foreign parents, RBI said, reported this on 5 October.

Systemically important banks are those whose assets become 0.25% of the total

assets of all commercial banks as on 31 March, the central bank said.

Going by this definition, eight foreign banks, including Citibank NA, HSBC

Holdings Plc and Standard Chartered Bankfall under this category.

As an incentive to set up wholly owned subsidiaries, RBI said it may allow

them to raise rupee resources in the form of non-equity capital, adding that it

will extend a less restrictive branch expansion policy to foreign players by

allowing them to operate in semi-urban areas.
http://www.livemint.com/2011/01/21201606/RBI-favours-subsidiary-route-f.htmlhttp://www.livemint.com/2011/01/21201606/RBI-favours-subsidiary-route-f.htmlhttp://www.livemint.com/2011/01/21201606/RBI-favours-subsidiary-route-f.htmlhttp://www.livemint.com/2011/01/21201606/RBI-favours-subsidiary-route-f.html


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Noting that it may not be possible to mandate conversion of existing players

into subsidiaries, RBI said the regulatory expectation would be that those

foreign banks which meet the conditions and thresholds mandated for subsidiary

presence for new entrants...would opt for converting their branches into wholly

owned subsidiaries.

On capital adequacy for new players, RBI said subsidiaries of foreign banks

will be treated at par with new private sector banks and shall maintain a

minimum capital adequacy of 10% of their risk-weighted assets.

Once the policy is in place, RBI said it will be more liberal in its branch

licensing policy, but it is difficult to award full national treatment to foreign

banks because this could lead to unintended consequences for the banking

sector.

They will then be treated virtually on par with their domestic peers in terms of

branch expansion regarding which the banking regulator has all along been

following a restrictive policy.

Deutsche Bank AGs managing director and chief executive officer refused to

comment on the paper because he had not read it. Spokespersons for Standard

Chartered and HSBC said they will comment only after going through the RBI

suggestions in totality. Citibank executives could not be reached, a

spokesperson said.

Currently, there are 37 foreign banks in India and collectively they have at least

320 branches, 0.43% of the 71,998-strong branch network across the nation.

As of 31 March 2011, the share of foreign banks in total banking assets stood at

10.52%, out of which that of the top five was 7.12%, RBI said. Among these,


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Citibank has 1.6% of the total assets of the banking system, while that of HSBC

is 1.52% and Standard Chartered Bank is 1.5%.

Under a 1997 World Trade Organization (WTO) agreement, total assets offoreign banks in India cannot exceed 15% of the total banking system. But RBI,

in its discussion paper, has changed the limit in terms of capital and reserves of

banks.

As per this, when the capital and reserves of foreign banks in India exceed 25%

of capital of the banking system, the regulator will put restrictions on the further

entry of new banks, branch expansion and will make it mandatory to get prior

approval for capital infusion, RBI said.

Presently, the net worth of 21 foreign banks stands at 15% of the total banking

system. Their market share in banking assets is 7.65% for the year ended 31

March 2011.

Under the WTO agreement, RBI needs to give 12 new branch licences to

foreign banks every year, including those given to new entrants and existing

players, but the Indian regulator has all along been allowing foreign banks to

open more branches, going beyond its commitment, but not as many as the

foreign banks want.


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Foreign banks set to play bigger role

Mumbai: Five years after laying down the road map for foreign banks play in

India, the countrys central bank is set to allow them a bigger role in the worlds

third fastest growing $1 trillion-plus economy after China and Brazil.

The Reserve Bank of India (RBI) will soon invite public comments on a

discussion paper that will suggest almost doubling foreign banks share in

Indian banking assets to 15%.

All new overseas entrants in the Indian banking space will be asked to locally

incorporate themselves while existing players will be encouraged to go in for

local incorporation and act as subsidiaries of foreign parents and not their

branches.

Once they do so, they will be treated virtually on a par with their domestic peers

in terms of branch expansion regarding which the banking regulator has all

along been following a restrictive policy.

The central bank is discussing the finer points of the proposal with the

government and the discussion paper will be put up on its website very soon, a

person familiar with the development toldMintlast week. The person did not

want to be named, considering the sensitivity of the issue.

A senior RBI official, involved in the process of drafting the policy, confirmed

this on Monday.

Currently, there are 32 foreign banks in India and collectively they have 310

branches, 0.43% of the 71,998-strong branch network across the nation.

Standard Chartered Bank leads the pack with 95 branches, followed by Hong

Kong and Shanghai Banking Corp. Ltd, or HSBC, (50) and Citibank NA (43).


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Their market share in banking assets is 7.74% and 8.37% in profits for the year

ended 31 March. Foreign banks in India account for 5% of the total deposits in

the banking system, 4.67% of advances and 9.27% of investments.

Under a 1997 commitment given to the World Trade Organization, RBI needs

to give 12 new branch licences to foreign banks every year, including those

given to new entrants and existing players, but the Indian regulator has all along

been allowing foreign banks to open more branches, going beyond its

commitment, but not as many as the foreign banks want.

Once the policy is in place, the regulator will be more liberal in its branch

licensing policy, but foreign banks may not quite get the national treatment.

The challenge will be maintaining the 15% cap in assets. What do we do when

their market share in assets come close to 15%? We wont be able to give them

a free hand (for branch licences). This is the challenge. We are looking into all

these, said the RBI official cited above.

The locally incorporated foreign banks will be subject to the same set of

banking norms that domestic banks follow. For instance, 40% of their loans will

have to be given to agriculture, small-scale industries and the weaker sections of

societythe so-called priority sectorand 25% of their branches need to be

located in rural India.

Currently, foreign banks need to channel only 32% of loans to the priority

sector, which for them also includes loans given to exporters. There is no

stipulation on rural branches though RBI is relatively liberal with foreign banks

proposals for setting up branches in such areas.

Once they choose to take the subsidiary route for Indian operations, foreign

banks will be given time to achieve the priority sector lending target.


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Their tax liability will also go down from 40% to around 33%.

If this is true, it will give us a tremendous play in India. We will be very happy

to locally incorporate if there are tangible benefits, said the CEO of a foreignbank who did not want to be named as the policy is not yet in the public

domain.

A banking consultant, also on condition of anonymity, said: Its all

mathematics. Once foreign banks market share in assets is doubled, their

growth will depend on how fast the local players are growing.

While that is true, historically, foreign banks share of banking assets in India

has been around 7-8% and once this goes up to 15%, they will definitely play a

larger role in the country.

In 2005, RBI released the guidelines on ownership in private banks and

acquisition norms for foreign banks. It threw a protective ring around local

players for four years by not allowing foreign banks to make acquisitions in

India but promised to review its policy after March 2009.

RBI could not review the policy in 2009 in the wake of the collapse of US

investment bank Lehman Brothers Holdings Inc., the unprecedented credit

crunch that the world faced and the dramatic change in risk perception.

Globally, the focus is on ring-fencing banks to minimize the damage in case of

a collapse and this can be done better when they are locally incorporated, said

the RBI official.

The 2005 guidelines allowed foreign banks to set up wholly owned subsidiaries

to conduct business in India, but did not change the existing branch licensing

procedure. No foreign player has taken this route as yet as the norms for the

wholly owned subsidiaries were never made public.


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In terms of assets, Citibank is the biggest foreign player in India with Rs95,490

crore worth of assets in fiscal 2010, followed by HSBC (Rs90,441 crore) and

Standard Chartered (Rs89,545 crore).

Their pace of growth has been much slower than local peers. The compound

annual growth rate (CAGR) of HSBCs assets in the past five years was

19.27%, Citis 16% and Standard Chartereds 14.27%. In contrast, Axis Bank

Ltd, which is double the size of HSBCs India operations, has grown at 29.41%.

HDFC Bank Ltd, another Indian private bank with an asset base of Rs2.23

trillion, has grown at a five-year CAGR of 24.78%. Even State Bank of India,

the nations largest lender with Rs10.54 trillion of assets, has grown its book at

16.36%, better than Citi and Standard Chartered.

However, the growth in off-balance sheet items in foreign banks books such as

guarantees, securitized loans, derivatives, among others, have been higher than

the domestic banks. While calculating their market share, these exposures, too,

will be taken into account.

Standard Chartered started its Indian operations by opening its first branch in

Kolkata in April 1858, a year after the so-called First War of independence in

which the British East India Co.s army rebelled against the colonial rulers.

HSBCs origins can be traced back to October 1853, when Mercantile Bank of

India, London and China was founded in Mumbai. It was acquired by HSBC in

1959. Citibank is 108 years old.

Among other foreign banks, Deutsche Bank AG, 30 years old in India, is

present in 12 centres through 13 branches. Barclays Bank Plc, which launched

its India operations in November 2006, has seven branches.


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UBS AG is one of the latest entrants in Indian banking space. Goldman Sachs

and Morgan Stanley are awaiting RBIs nod to enter commercial banking while

Nomura is planning to move the regulator for a banking licence.

With its economy growing at 8.5%, corporate earnings growing at 20% and

more and more consumers buying homes and cars, India is emerging as one of

the most lucrative destinations for global banks.


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Roadmap for Presence of Foreign Banks in India

It may be recalled that the Ministry of Commerce and Industry, Government of

India had, on March 5, 2004 revised the existing guidelines on foreign directinvestment (FDI) in the banking sector. These guidelines also included

investment by non-resident Indians (NRIs) and FIIs in the banking sector.

As per the guidelines the aggregate foreign investment from all sources was

allowed up to a maximum of 74 per cent of the paid up capital of the bank while

the resident Indian holding of the capital was to be at least 26 per cent. It was

also provided that foreign banks may operate in India through only one of the

three channels, namely (i) branch/es (ii) a Wholly owned Subsidiary or (iii) a

subsidiary with an aggregate foreign investment up to a maximum of 74 per

cent in a private bank. In consultation with the Government of India,RBI has

released the road map for presence of foreign banks in India to operationalise

the guidelines.

The roadmap is divided into two phases. During the first phase, between March

2005 and March 2009, foreign banks will be permitted to establish presence by

way of setting up a wholly owned banking subsidiary (WOS) or conversion of

the existing branches into a WOS.

To facilitate this, RBI has also issued detailed guidelines. The guidelines cover,

inter alia, the eligibility criteria of the applicant foreign banks such as

ownership pattern, financial soundness, supervisory rating and the international

ranking. The WOS will have a minimum capital requirement of Rs. 300 crore,

i.e., Rs 3 billion and would need to ensure sound corporate governance. The

WOS will be treated on par with the existing branches of foreign banks for

branch expansion with flexibility to go beyond the existing WTO commitments

of 12 branches in a year and preference for branch expansion in under-banked


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areas. The Reserve Bank may also prescribe market access and national

treatment limitation consistent with WTO as also other appropriate limitations

to the operations of WOS, consistent with international practices and the

countrys requirements.

During this phase, permission for acquisition of share holding in Indian private

sector banks by eligible foreign banks will be limited to banks identified by RBI

for restructuring. RBI may if it is satisfied that such investment by the foreign

bank concerned will be in the long term interest of all the stakeholders in the

investee bank, permit such acquisition. Where such acquisition is by a foreign

bank having presence in India, a maximum period of six months will be given

for conforming to the one form of presence concept.

The second phase will commence in April 2009 after a review of the experience

gained and after due consultation with all the stakeholders in the banking sector.

The review would examine issues concerning extension of national treatment to

WOS, dilution of stake and permitting mergers/acquisitions of any private

sector banks in India by a foreign bank in the second phase.


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RBI roadmap: Foreign banks get to eye

private banks

Swiftly taking its cue from Finance Minister P Chidambarams Budget speech,

the Reserve Bank of India (RBI) today came out with a flexible roadmap for

foreign banks and ownership guidelines for private banks in India. While the

much-awaited roadmap promises opening up of the sector, the central bank still

retains considerable discretionary powers.

While the RBI has provided room for higher levels of shareholding than the

prescribed limit in private banks, foreign banks are allowedin two stagesto

convert their branches into wholly-owned subsidiaries and later list their shares

on the stock exchanges with minimum 26 per cent stake with the public.

FOR FOREIGN BANKS

In the first phase (up to 2009), foreign banks already operating in India will be

allowed to convert their existing branches to wholly-owned subsidiaries.

To allow Indian banks sufficient time to prepare themselves for global

competition, entry of foreign banks will initially be permitted only in privatesector banks that are identified by RBI for restructuring.

In such banks, foreign banks would be allowed to acquire a controlling stake in

a phased manner, the RBI said.

In considering an application made by a foreign bank for acquisition of 5 per

cent or more in the private bank, RBI will take into account the standing and


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reputation of the foreign bank, globally as well as in India, and the desired level

and nature of presence of the foreign bank in India.

The RBI may also specify, if necessary, that the investor bank should make a

minimum acquisition of 15 per cent or more and may also specify the period of

time for such acquisition. The overall limit of 74 per cent will be applicable, it

said.

In the second phase (after 2009), the subsidiary of foreign banks, on completion

of a minimum prescribed period of operation, will be allowed to list and dilute

their stake so that at least 26 per cent of the paid up capital of the subsidiary is

held by resident Indians at all times consistent with para 1(b) of the Press Note

2 of March 5, 2004. The dilution may be either by way of initial public offer or

as an offer for sale.

After a review is made with regard to the extent of penetration of foreign

investment in Indian banks and functioning of foreign banks, the RBI said,

foreign banks may be permittedsubject to regulatory approvals and such

conditions as may be prescribedto enter into merger and acquisition

transactions with any private sector bank in India subject to the overall

investment limit of 74 per cent.

FOR PRIVATE BANKS

As a prescribed limit, foreign banks and financial institutions (FIs) stake

holding in private banks remain capped at 5 per cent while large industrial

houses will be allowed to acquire, by way of strategic investment, shares not

exceeding 10 per cent of the paid-up capital of the banksubject to RBIs prior

approval.

The RBI has also said that all private sector banksold or newhave tomaintain a minimum net worth of Rs 300 crore. The central bank also made it


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mandatory for the banks to provide all information to RBI for approval of

appointment of chairman or CEO.

However, the RBI allowed a transition arrangement and asked the banks or FIs

to submit a time-bound plan for abiding to the final guidelines on ownership

and governance in private banks.

For maintaining the minimum level of capital, the RBI has asked the banks,

which are yet to achieve the norm, to adopt and submit a time-bound plan.

Where the net worth declines to a level below Rs 300 crore, it should be

restored within a reasonable time, added RBI. The old private banks had earlier

been given a three-year time period to increase their capital from Rs 200 crore

to the prescribed level.

The guidelines are to ensure a diversified ownership and control in private

sector banks so as to minimise the risk of misuse of leveraged funds. The RBI

has also said that foreign banks, with presence in the country, or FIs should not

acquire any fresh stake in a banks equity shares, if by such acquisition, the

holding exceeds 5 per cent of the investee banks equity capital.


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PROS AND CONS OF FOREIGN BANKS

Entry of foreign bank brings both positive and negative effect on the host

country. These are called pros and cons of foreign bank. The pros include

better resource allocation, higher competition and efficiency, lower

probability of financial crisis, enhanced public confidence in the banking

sector, enhanced access to international capital, and development of the

underlying bank supervisory and legal framework.

On the other hand, the cons of foreign bank penetration include loss of

domestic banks market share, instability of the domestic deposit

base, credit rationing to small firms, loss of domestic banks profitability,

foreign domination and control of the banking system, volatility of domestic

financial markets, and worsening of the domestic financial systems ability

to respond to large internal and external shocks.

Pros of Foreign Bank PenetrationIn the main, the reasons for relaxed restrictions on foreign bank participation in

banking systems all over the world are traceable to the pros (i.e. perceived

benefits) of foreign bank presence. Several authors have addressed the

potential benefits of foreign bank entry for the domestic economy in terms

of better resource allocation and higher efficiency. Foreign banks may

(i) Enhance a countrys access to international capital.

(ii) Serve to stimulate the development of the underlying bank

supervisory and legal framework.


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(iii) Improve the quality and availability of financial services in the

domestic financial market by increasing bank competition, and enabling the

application of more modern banking skills and technology.

However, foreign banks have to be sizable for there to be any significant

transfer of banking technology to the domestic banking sector.

Foreign ownership of banks is often thought to improve overall

bank soundness, especially when the foreign parent banks belong to

well-regulated financial systems that are themselves healthy. Such parent

banks are expected to provide greater access to the capital and liquiditythat bolster balance sheet strength, and to transfer to local banks the skills

and technology that enhance risk management and internal controls. More

broadly, foreign bank presence is expected to fortify emerging market

financial systems by encouraging higher standards in auditing, accounting

and disclosure, credit risk underwriting, and supervision.

Foreign banks improve the quality and availability of financial services in

the domestic financial market by increasing bank competition, and

enabling the application of more modern banking skills and technology. Thus,

foreign bank entry has positive welfare implications for all facets of

customers of banking and other financial institutions.

Banking crises positively correlate with limitations on foreign bank entry into

domestic markets. Thus, merely reducing such limitations and easing the ability

of foreign banks to enter the domestic banking market reduces the incidence

of banking crises, even if foreign banks do not enter. In sum,

findings suggest that potential entry of foreign banks proves

beneficial on the stability of the domestic banking market.

Regarding the link between foreign penetration and financial stability,

other things equal, the presence of foreign banks is associated with a lower


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probability of financial crisis. If foreign-owned banks forestall liquidity

shocks as a result of being better aided by their highly capitalized parents, a

country with an internationalized banking sector may be partially isolated from

bank runs, irrespectively of the risk-taking behaviour of their foreign-owned

institutions. In fact, the presence of foreign banks prevents a bank run in the

first place.

It is also commonly believed that foreign-owned banks provide stability in

times of financial crises. Studies of the Argentina and Mexico crises indicate

that in a credit crunch, foreign-owned banks are able to provide credit

growth that domestic banks are not able to provide In a similar

element, foreign banks may provide higher and more sustained credit flows

than their domestic counterparts. However, foreign banks only offer a source

of stability if their operations are less sensitive to host-market conditions

than the local banking firms.

It is also widely believed that the presence of foreign banks helps

governments to attract further foreign direct investment inflows. Supporters of

foreign bank entry argue that these banks provide an important channel for

foreign capital inflows to finance domestic activities. If these foreign funds

complement rather than substitute for domestic sources of funds, then a net

expansion of available funds that supports higher economic growth reports

specific cases in Pakistan, Turkey, and Korea, where foreign banks helped

to make foreign capital accessible to fund domestic projects.

Foreign bank presence can promote improvements in government regulation

and supervision of the financial system due to the unfamiliar business practices

that they import into the host country. Domestic regulators would initially

find these unfamiliar business practices difficult to evaluate and supervise;

however, as time unfolds, new systems and laws would be created to deal


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with the new problems arising as a result of the fresh lines of activities

and problems within the financial system.

Cons of Foreign Bank Penetration

In the main, the reasons for tightening restriction on foreign bank participation

in banking systems all over the world are traceable to the cons (i.e. perceived

demerits) of foreign bank presence. Rather unfortunately, several studies have

revealed that foreign bank participation has several negative consequences.

Notable among them are competitive pressures resulting in significant loss of

domestic banks market share and profitability instability of the domestic

deposit base especially during times of systemic crises, and the worsening

of the domestic financial systems ability to respond to large internal and

external shocks.

Competitive pressures arising as a result of foreign bank participation in a

banking system have negative consequences that are evident in various

ways.

Firstly, competitive pressures arising as a result of foreign bank

participation in a banking system could result in significant loss of

domestic banks market share with various accompanied consequences.

Gradually and increasingly, international banks have been known to target

multinational corporations, foreign agencies and international firms. In doing

so, they leverage off the international banking relationships of their parent

banks and home country contacts. Under such circumstances, indigenous

banks have an uphill task retaining or acquiring the accounts of these

multinationals, foreign companies and agencies.


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Also, if foreign banks appear more stable than domestic institutions, they may

attract the best domestic borrowers (higher-profit and lower-risk borrowers),

putting domestic banks in the more precarious position of lending to

less credit-worthy borrowers. In this case, indigenous commercial banks are

forced to give attention to micro and rural credits.

In a cross-country study, it was found that foreign bank entry leads to a

decrease in domestic bank profitability, banks non-interest income, and

bank overall expenses, but only when entry is measured by the share of foreign

banks in the total number of banks rather than their share in the assets

of the banking system. Though domestic banks overhead costs are lower

in countries with substantial foreign bank presence; domestic banks

pretax profitability in high foreign-entry markets is much lower than in

markets with low foreign bank presence. From an empirical analysis, also

found that increased penetration of foreign banks in the domestic banking

system (as measured by the relative importance of foreign banks in either

the total number of banks, or total assets, of the banking system) is

associated with a reduction in both profitability and overhead costs for

domestic banks. However this indicates an improvement in domestic bank

efficiency.

Foreign bank entry has also been discovered to have a statistically

positive impact on the level of loan loss provisioning of domestic banks.

This is because foreign bank entry leaves domestic banks to cater for

relatively less creditworthy customers, or alternatively foreign bank entry

triggers a strengthening of provisioning regulations affecting all banks, thus

leading to larger reported provisioning for bad debts by domestic banks

It has been argued that entry of foreign banks may not lead to enhanced

stability of the domestic banking system, because their presence per se does not


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sympathetic to the cause of the small firms, especially the indigenous ones.

If foreign banks do indeed follow a strategy of concentrating their lending

operations only to the most creditworthy corporate (and, to a lesser

extent, household) borrowers, their presence will be less likely to

contribute to an overall increase in efficiency in the banking sector, in

particular, and the financial sector, in general. More importantly, by leading to a

higher degree of credit rationing to small firms, they may have an adverse

effect on output, employment, and income distribution.

Hence, theoretically speaking, an increase in the number of foreign banks

in a financial system implies a reduction in the aggregate amount of local

micro-firm financing. This could adversely affect the growth and entry of local

micro firm.


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Rough road ahead for foreign banks setting

up units here

The Reserve Bank of India (RBI) is currently seeking feedback on the

implications of foreign banks setting up wholly-owned subsidiaries in India.

Many large international banks already have an established presence in India.

They are well integrated into the domestic system, and compete with domestic

banks. Nonetheless, the recent discussion paper falls short of needs and leaves

room for a debate. After having unveiled its initial draft road map for foreign

banks in 2005, the regulator has issued a number of guidelines . However, in

light of the international economic downturn, it has, to date, deferred from

making any definitive policy decisions. The latest draft assumes that the global

economic growth will continue to be muted and retains its conservative

approach in an effort to provide adequate protection to investors.

Its stipulations will determine the strategy of the 34 international banksoperating in India which, as on March 31, 2010, in aggregate, held around

10.52% of the total assets (including credit equivalent of the off-balance sheet

assets ) of all scheduled commercial. In light of the international debate on the

"too big, or too connected to fail" issues, it is unsurprising that the RBI has

adopted a cautious approach towards setting up subsidiaries. In a buoyant

economy, the relationship between bank branch and parent may be of little

importance but in adverse conditions, the structure and location of both assets

and liability may well become critical. In addition to being more flexible

operationallythe bank branch structure can increase lending capacity based

on parent bank's capitalfrom a corporate governance perspective , it also

reduces local dependency as, typically, it facilitates control and support from

the regional and head office.


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Foreign banks keen to strengthen foothold

in India

(Major foreign banks like ANZ of Australia, Credit Suisse and Goldman Sachs

are also keen on entering India)

Mumbai: Foreign banks have been in India for more than 150 years but more

overseas lenders are now queuing up to set up operations, amid signs that tough

restrictions on entry may be eased.

Five to eight foreign banks are seeking to come to India, a source familiar with

the industry said, with the country viewed as attractive because of gaps in the

market and a buoyant economy that has created wealthier clients.

India is in focus. It is a high-growth market, added Abizer Diwanji, head of

financial services at consultancy KPMG India. Foreign banks are building their

base here, focusing on high-net-worth clients.

Last week Britains Standard Chartered Bank raised $530 million in a novel

share sale through Indian Depository Receipts, which gives Indians an

opportunity to get a global exposure to banking.

The London-based lender, which as The Chartered Bank opened its first

overseas bank in the eastern city of Calcutta in 1858, called the fund-raising

issuewhich was oversubscribed by more than doublea homecoming.

Australias third-largest bank, ANZ, has been given the go-ahead for retail and

wholesale banking operations. Credit Suisse, which already has an Indian

investment banking, wealth management and mutual fund arm, is following

suit. Embattled bank Goldman Sachs is also keen to enter India.


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India is a real market of substance, ANZs chief executive for Asia Pacific,

Europe and America, Alex Thorsby, has said.

The presence of foreign banks has brought changes to the way India banks.They were instrumental in bringing automated teller machines (ATMs) and

credit cards to India.

But they have still played a limited role in Indias vast lending space, which has

traditionally been dominated by state-run banks, mainly due to restrictions and

entry barriers in place until economic liberalisation in the early 1990s.

Operations still cater to a niche market of wealthy clients in big cities, offering

specialised products, forex and financial transaction facilities, advisory and

wealth management services.

Thirty-four foreign banks are currently operating in India with Citibank,

Standard Chartered and HSBC currently accounting for 70% of their total

business.

In the last five years to March 2009, foreign banks have seen a net profit

compounded annual growth of 27%, led by interest and fee-based income, a

report from Mumbai-based HDFC Securities shows.

India has concentrated on consolidating its domestic banking system over the

last five years but the Reserve Bank of India says the next phase of expansion

will see foreign banks role gradually enhanced in a synchronised manner.

A spokeswoman declined to comment on how many overseas banks are looking

to set up but said they would clear applications as they come in.


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The RBI has approved an average 15 bank-branch licences every year for the

past few years, which is above its commitment of 12 to the World Trade

Organisation.

But predictions about when foreign banks will arrive is difficult to assess.

One issue that could delay entry is the current trouble in the eurozone, which

could affect strategic decision-making.

Typically, foreign banks are dependent on the fortunes of their head office,

said one banking analyst.

Foreign banks could also face stiff competition from Indian lenders, despite the

country having a relatively low penetration of financial services, as more private

banks have come into the sector in the last decade.

Interest margins for banks have been falling since 2000, according to a report by

investment bankers and securities firm Execution Noble, as banks fight formarket share across the board.

In the decade to September 2009, private banks doubled their market share to

20%, while foreign banks slipped from 8% to 6%, said Execution Nobles Aditi

Thapliyal


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The headcount of RBS employees in the country went down to 2,716 in 2010

from 3,241 in 2009.

The decline was more pronounced in the case of Barclays. Its employee strengthin India in 2010 was 1,083, down from 1,534 in the previous year.

Germany-headquartered Deutsche Bank also registered a dip in its headcount

from 1,599 in 2009 to 1,498 last year.

A similar decline was also reported by other foreign lenders operating in India,

like Societe Generale, Mizuho Corporate Bank, Credit Agricole and Bank ofAmerica.

Meanwhile, six other lenders -- State Bank of Mauritius, Oman International

Bank, Mashreqbank, Krung Thai Bank, Bank of Ceylon and Bank Internasional

Indonesia -- reported no change in their employee strength in India during 2010

vis-a-vis the previous year.

Besides Standard Chartered, the other overseas lenders that increased their India

headcount in 2010 are UBS AG (to 34 employees in 2010 from 18 in 2009),

Mizuho Corporate Bank (to 126 from 113), Development Bank of Singapore (to

417 from 359), Bank of Tokyo-Mitsubishi (to 101 from 95), Bank of Nova

Scotia (to 106 from 105) and American Express Banking Corporation (to 870

from 857).


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RBI may make it mandatory for foreign

banks to adopt WOS

(wholly owned subsidiary) route

NEW DELHI: The Reserve Bank is likely to make it mandatory for foreign

banks in the country to operate as wholly-owned subsidiaries, in line with the

international practice, so that the central bank can have better control over their

working.

Initially, according to sources, the new banks and the existing ones with a few

branches will be asked to convert into wholly-owned subsidiaries (WoS).

The larger banks, they said, could be given some more time to adhere to the

guidelines that are likely to be announced by June-end.

At present, the foreign banks operate through their branches. Under the WOS

model, the foreign banks will be required to set up a subsidiary under the

Companies Act and operate as an Indian entity.

Sources said that in several countries, including the US and Singapore, it is

mandatory for banks to operate as WOS.

In order to align Indian laws with the international best practices, the RBI had

come out in January with the draft guidelines on the mode of operations for

foreign banks in India.

At present, foreign banks like Citi, Standard Chartered and HSBC operate as

branches, mainly in bigger cities, and do not have the freedom to expand like

the banks incorporated in India.


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In its discussion paper, the RBI has said that it expects large banks to convert

them from branches to WOS and that the banks who adopt the subsidiary model

would be given preferential treatment for opening of branches.

The RBI has further called for making it mandatory for foreign banks with more

than 0.25 per cent share in the Indian banking industry to convert themselves

from a branch into a WOS.

It points out that the government has clarified that a company with a foreign

holding of over 50 per cent is a foreign company.

At present, there are 37 foreign banks operating in India, with five major banks,

including StanChart, HSBC, Citibank and Deutsche, accounting for over 70 per

cent of the the total asset size.

The discussion paper also said the WOS may be allowed to raise rupee

resources through non-equity capital instruments.


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How foreign Banks can Enter in India

ENTRY OF FOREIGN BANKS IN INDIA

At present there are 320 branches of foreign banks. The entry of foreign banks

in India is based on reciprocity, economic and political bilateral relations. These

banks finance trade and lend to large business groups. They have also

diversified into merchant and retail banking, security operations, deposit

mobilization from non-resident Indians and consulting services.

It is well-known that foreign banks have helped in making Indian banking

system more competitive and efficient. Consequently, the Government came up

with a road map for expansion of foreign banks in India. This plan had two

phases. During the first phase between March 2005 and March 2009 (ie during

the initial stages of roadmap), foreign banks could establish a presence by way

of setting up a wholly owned subsidiary (WOS) or conversion of existing

branches into a WOS.

Road map For Presence of Foreign Banks in India

On 28 February 2005, RBI issued Road map for Presence of Foreign Banks in

India containing the guidelines for (i) setting up of WOS by foreign banks; and

(ii) conversion of existing branches of foreign banks into WOS.

The salient features of the guidelines are discussed herein below:

Eligibility of the Parent Bank

Foreign banks applying to the RBI for setting up a WOS in India must satisfy

RBI that they are subject to adequate prudential supervision in their home

country. The setting up of a wholly-owned banking subsidiary in India should


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have the approval of the home country regulator. Other factors (but not limited

to) that will be taken into account while considering the application are:

Economic and political relations between India and the country of

incorporation of the foreign bank.

Financial soundness of the foreign bank.

Ownership pattern of the foreign bank.

International and home country ranking of the foreign bank.

Rating of the foreign bank by international rating agencies.

International presence of the foreign bank.

Capital

The minimum start-up capital requirement for a WOS would be Rs. 3 billion

and the WOS shall be required to maintain a capital adequacy ratio of 10 per

cent or as prescribed, from the commencement of its operations. It should be

noted that the parent foreign bank will continue to hold 100 per cent equity in

the Indian subsidiary for a minimum prescribed period of operation.

Corporate Governance

The composition of the Board of directors should meet the following

requirements:

Not less than 50 per cent of the directors should be Indian nationals

resident in India.

Not less than 50 per cent of the Directors should be non-executive

directors

A minimum of one-third of the directors should be totally independent of

the management of the subsidiary in India, its parent or associates.

The directors shall conform to the Fit and Proper criteria as laid down in

RBIs extant guidelines dated June 25, 2004.


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Accounting, Prudential Norms and Other Requirements

The WOS will be subject to the licensing requirements and conditions, broadly

consistent with those for new private sector banks. It will be treated on par with

the existing branches of foreign banks for branch expansion. The banking

subsidiary will be governed by the provisions of the Companies Act, 1956;

Banking Regulation Act, 1949; Reserve Bank of India Act, 1934; other relevant

statutes, directives, prudential regulations and guidelines/instructions issued by

RBI from time to time.

Conversion of Existing Branches into a WOS

All the above requirements prescribed for setting up a WOS will be applicable

to existing foreign bank branches converting into a WOS. In addition, they

would have to satisfy the following requirements:

1. Supervisory Comfort

Permission for conversion of existing branches of a foreign bank into a WOSwill inter alia be guided by the manner in which the affairs of the branches of

the bank are conducted, compliance with the statutory and other prudential

requirements and the overall supervisory comfort of the RBI.

2. Capital Requirements

The minimum net worth of the WOS on conversion would not be less than Rs. 3

billion and the WOS will be required to maintain a minimum capital adequacy

ratio of 10 percent of the risk weighted assets or as may be prescribed from time

to time. In this connection, RBIs assessment of the net worth will be final.


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India to Audit Foreign Banks Operations

Prior to Permitting New Branches

Nov. 6th. 2009The Reserve Bank of India has confirmed that it will require

foreign banks to undergo a full audit of their Indian operations prior to be

allowed to establish new branches.

India had committed to allowing twelve new branches of foreign banks a year to

be opened, however in practice has been far more open. Some 32 foreign banks

currently operate in India with some 300 branches between them.

Under Indias WTO agreements, the country has the right to exclude licenses

from banks once their share in the banking system exceeds 15 percent. This

threshold was passed some time ago. The requirement to audit foreign banks

before further expansion is to preserve risk management capabilities over

concerns that any failures could create risks for Indian financial markets.

India is also pushing for its domestic banks to have greater access in

international markets and says that the issuance of further main banking licenses

to foreign banks in India will depend on reciprocity. The move to audit foreign

banks expansion in India is seen as a sensible precaution in light of the current

global crisis.


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domestic depositors and creditors over other assets is yet to be legally

tested.

Keeping the above in view, on balance, the subsidiary model has clear

advantages over the branch model despite certain downside risks.

However, under the extant policy as laid down in 2005 Roadmap, no

foreign bank has approached RBI, for setting up a subsidiary, may be due

to lack of incentives. Hence there may be a need to incentivise subsidiary

form of presence of foreign banks.

From financial stability perspective there would be a need to mandate at

entry level itself subsidiary form of presence (i.e. wholly owned

subsidiary-WOS) under certain conditions and thresholds. It would

likewise be mandatory for those fresh entrants who establish as branches

to convert to WOS once they meet the conditions and thresholds referred

to above or which become systemically important over a period by virtue

of their balance sheet size.

While deciding the approach towards conversion of existing foreign bankbranches, Indias commitments to WTO will have to be kept in mind.

It may not, therefore, be possible to mandate conversion of existing

branches into subsidiaries. However, the regulatory expectation would be

that those foreign banks which meet the conditions and thresholds

mandated for subsidiary presence for new entrants or which become

systemically important by virtue of their balance sheet size wouldvoluntarily opt for converting their branches into WOS in view of the

incentives proposed to be made available to WOS.

The branch expansion of both the existing foreign banks and the new

entrants present in the branch mode would be subject to the WTO

commitments.


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CONCLUSION

Foreign Banks in India always brought an explanation about the prompt

services to customers. After the set up foreign banks in India, the banking sector

in India also become competitive and accurative. India is expected to find a

place in the strategy of these banks given the country's growth prospects. There

have been cases of foreign banks closing shops in India too. India's GDP is seen

growing at a robust pace of around 7 per cent over the next few years, throwing

up opportunities for the banking sector. Participation in the growth curve of the

Indian economy in the next four years will provide foreign banks a launch pad

for greater business expansion when they get more freedom after few years.


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Bibliography

www.rbi.org.in

www.indiastat.com

www.livemint.com

www.gooogle.com
http://www.rbi.org.in/http://www.rbi.org.in/http://www.indiastat.com/http://www.indiastat.com/http://www.livemint.com/http://www.livemint.com/http://www.livemint.com/http://www.gooogle.com/http://www.gooogle.com/http://www.gooogle.com/http://www.gooogle.com/http://www.livemint.com/http://www.indiastat.com/http://www.rbi.org.in/

Documents

Role of Frgn Banks Final