Foreign banks operating in India are vertically divided on the issue of approaching the Reserve Bank of India (RBI) for relaxing the new capital norms which will come into effect from April 1.
The new capital norms seem to have affected the working of small foreign banks in the country rather than the bigger banks which are well capitalised.
In its April credit policy, RBI barred the foreign banks from including their external commercial lending to Indian corporates as part of their tier-I capital. The new norms will force the foreign banks either to infuse fresh capital to maintain the capital adequacy ratio (CAR) or pare their asset base.
A string of foreign banks met at the Indian Banks' Association (IBA) on June 6 to chalk out a common strategy. The meeting was convened by Banque National De Paris chief executive and country manager Jonathan David Lyon who is also the vice-chairman of IBA. IBA is planning to take up the issue with the RBI in August after the foreign banks reach a consensus on the issue.
According to industry sources, bigger foreign banks are not too keen to join the group as they are not uncomfortable with the new norms. Some of these banks have already approached the apex bank on the issue on their own.
Says the head of one of the foreign banks, "Everybody is affected by the recent norms -- only the degree is varying. The RBI has only bought in an international practice to the country. The smaller banks with huge exposure to Indian corporates through the external commercial borrowing route will be affected."
The RBI had earlier debarred foreign banks from raising local rupee resources for tier-II capital.
Says another senior foreign banker: "The new capital norms along with the new rule on tier-II issue has affected the capital raising norms of smaller banks more as bigger banks had already come out with their tier-II issues before."
"Most of the smaller foreign banks are reviewing their operations in India. Unless the bank has a specific niche in the country, it does not make any sense of these headquarters to put in more money into the Indian operations. Almost all the one-branch banks in India are reviewing their operations. It would be more viable for the banks to maintain only a representative office in the country," pointed out an Indian chief executive officer at a European bank.
