Foreign banks see little leeway after 2009

Bankers have read the Reserve Bank of India's (RBI) comments on foreign banks' market share in India as an indication that the promised review of policies on the presence of overseas banks in 2009 is unlikely to yield any greater leeway within which they can operate.

RBI Deputy Governor V Leeladhar yesterday said the share of foreign banks in the assets of India's banking system at 49 per cent at the end of January 2007 was far in excess of the commitment of 15 per cent at the World Trade Organisation (WTO).

"The view of the deputy governor represents the views of the RBI," was how RBI Governor Y V Reddy responded to a question on whether the comments were virtually the review of the Indian banking landscape ahead of 2009, the year earmarked for considering possibilities of allowing greater presence for foreign banks in India.

A senior foreign banker said, "I don't understand what was the trigger for RBI to say all this. But it is a clear signal that not much should be expected when 2009 arrives."

The roadmap for foreign banks' presence in India had stated that RBI would consider granting subsidiary banks of foreign banks in India the same treatment as Indian banks, with a stipulation to list on Indian exchanges.

RBI's Leeladhar had said that the Indian regulatory regime was in fact much more equitable and provided a far more level playing field to foreign banks than in many other jurisdictions both developed and emerging economies.

RBI supported this point by saying that in terms of the WTO commitment, licences for new foreign banks might be denied when the share of foreign banks' assets in India exceeded 15 per cent.

"However, we have autonomously not invoked this limitation so far to deny licences to the new foreign banks."

Leeladhar had also stated that two Indian banks (without naming ICICI Bank and HDFC) were majority owned by foreign shareholders and thereby, the market share of banks with foreign ownership increases substantially. When contacted, Kalpana Morparia, chief strategist and communications officer, ICICI Bank, said she has no comments to offer.

The India head of a foreign bank, reacting to the comments of Leeladhar, said, "This will start a debate on what foreign ownership means. How will you define foreign ownership? Will it be based on where the board is based, the nationality of board members or the nation of the prime regulator.''