In February 2005, the RBI had released the ‘Roadmap for presence of foreign banks in India’ laying out a two-track and gradualist approach aimed at increasing the efficiency and stability of the banking sector in India. The first track was the consolidation of the domestic banking system, both in the private & public sectors. The second track involved the gradual enhancement of foreign banks in a synchronised manner. This roadmap was divided into two phases, the first phase spanning the period March 2005 – March 2009, and the second phase following the review of the first phase experience.
In the first phase, foreign banks wishing to establish presence in India for the first time could either choose to operate through branch presence or set up a 100% wholly-owned subsidiary (WOS), following the one-mode presence criterion. Foreign banks already operating in India were also allowed to convert their existing branches to WOS while following the one-mode presence criterion. The WOS was to be treated on par with the existing branches of foreign banks for branch expansion in India. No foreign bank, however, applied to establish itself as a WOS or to convert to a WOS during the first phase.
Just when the revision of presence of foreign banks in India was due in April 2009, the global financial markets went in turmoil and uncertainties plagued the financial strength of banks around the world.
Accordingly, the Annual Policy statement of April 2009 indicated the intent to continue with the current policy and procedures governing the presence of foreign banks in India and to review its roadmap after due consultation with the stakeholders once there was greater clarity regarding stability and recovery of the global financial system. Accordingly the annual monetary policy 2010, directed to prepare a discussion paper on the mode of presence of foreign banks through branch or WOS by September 2010. In all probability, the outcome is likely to encourage more investments in India. The next four years promise a launch pad to foreign banks for substantial business expansion.
Amar Ambani, Head of Research (Private Client Group), IIFL – India Infoline Group
In the first phase, foreign banks wishing to establish presence in India for the first time could either choose to operate through branch presence or set up a 100% wholly-owned subsidiary (WOS), following the one-mode presence criterion. Foreign banks already operating in India were also allowed to convert their existing branches to WOS while following the one-mode presence criterion. The WOS was to be treated on par with the existing branches of foreign banks for branch expansion in India. No foreign bank, however, applied to establish itself as a WOS or to convert to a WOS during the first phase.
Just when the revision of presence of foreign banks in India was due in April 2009, the global financial markets went in turmoil and uncertainties plagued the financial strength of banks around the world.
Accordingly, the Annual Policy statement of April 2009 indicated the intent to continue with the current policy and procedures governing the presence of foreign banks in India and to review its roadmap after due consultation with the stakeholders once there was greater clarity regarding stability and recovery of the global financial system. Accordingly the annual monetary policy 2010, directed to prepare a discussion paper on the mode of presence of foreign banks through branch or WOS by September 2010. In all probability, the outcome is likely to encourage more investments in India. The next four years promise a launch pad to foreign banks for substantial business expansion.
Amar Ambani, Head of Research (Private Client Group), IIFL – India Infoline Group
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Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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