PM assures role for foreign banks in reforms

The Prime Minister Manmohan Singh assured a high-level UK delegation that foreign banks will play a bigger role in banking reforms.

This is even as the finance ministry and the Reserve Bank of India (RBI) are yet to sort out their differences.

The UK delegation consisted of heads and senior executives of Standard Chartered Bank and BNP Paribas, who returned to the UK after the government's promise to release the results of the draft guidelines for foreign banks in the next couple of days.

The finance minister has not ruled out establishing a super regulator, but he told the delegates that for the time being, it was necessary to continue with separate regulators.

"The government assured us that the forthcoming announcement (on revised regulations for foreign banks) will be an improvement over the present situation, and make it easier for us to invest in the country," said Thomas Harris, vice chairman, Standard Chartered Bank Plc.

At the same time, StanChart will not stop growing its domestic business whatever the outcome of the draft guidelines, he added, stating that the bank is keen to leverage the growth opportunities in India.

The restriction on foreign ownership is expected to be less onerous. "A balance needs to be struck as we have seen over the last six years in Korea, which has fundamentally gone in for economic restructuring.

This enabled us to make a major investment in the country," Harris told Business Standard. Stanchart Plc made its largest investment when it bought over Korea First Bank for $3.3 billion.

The Indian government acknowledges that growth needs to take place in order for India to exploit its competitive advantage and move forward within the Asian region, said global bank executives.

In response to what foreign bankers want from the government, Harris said: "In an ideal world, we would like the same freedom we have in UK, and effective regulations of the banking sector, as we have in Hong Kong."

Meanwhile, even as the UK delegation went back home pleased with their meeting with the government, chiefs of foreign banks in India are not as gung-ho.

This is as central bank's draft guidelines on ownership in private sector banks has capped foreign ownership at 5 per cent.

The finance minister on the other hand has stated that the road map for the banking sector will contain bold measures allowing foreign direct investment up to 74 per cent in private sector banks.