Curbs on foreign bank branch spread

The Reserve Bank of India (RBI) has told foreign banks that it could not consider setting up of administrative offices and processing centres outside the branch authorisation policy. Foreign banks had earlier sought a clarification from the RBI on issues related to their branch expansion in India.

The banks, under the aegis of the Indian Banks' Association (IBA), had referred the issue of opening new branches, setting up of administrative offices, splitting of branches for process convenience and related issues arising out of RBI's branch licensing policy to the central bank. The RBI said it was in the process of clearing the applications received from the foreign banks operating in India.

It clarified that setting up of administrative offices and processing centres could not be treated outside the purview of the branch authorisation policy as banking transactions could be done from such locations with the help of information technology. While automated teller machines (ATMs) were not included in the number of branches, banks needed to get

RBI permission before setting them up.

The banking regulator said it also took into account India's trade commitments at the World Trade Organisation (WTO), the treatment extended to Indian banks in the home country of the applicant foreign bank, bilateral and diplomatic relations between India and the country concerned and the number of applications received from new entrants while evaluating foreign banks' application for annual branch expansion plans. These parameters are in addition to the norms already laid down under the Banking Regulation Act, 1949.

The RBI had in its annual report for 2005-06 said it would consider each foreign bank's and its group's track record of compliance and functioning in the global markets while approving branch expansion plans. If necessary, it could also seek reports from the applicant bank's home country.

Foreign banks are required to bring an assigned capital of $25 million upfront at the time of opening their first branch in India. This requirement is also to be met by existing foreign banks, having only one branch, before their request for opening of second branch is considered. Foreign banks have to submit their branch expansion plans on an annual basis.

The RBI issues on an average 18 licenses a year to foreign banks against the country's commitment to the WTO of issuing 12 branch licenses. The foreign banks operating in the country had a total of 259 branches and 880 ATMs at the end of March 2006.