The Reserve Bank of India (RBI) appears to have gone slow in offering new branch licences to foreign banks which have greater presence in the country. The top seven lenders, which account for over 70 per cent of foreign bank branches in India, have not added a single branch to their existing network in the current year.
While most bankers claimed they had sought permission for new branches and were awaiting the regulator’s approval, a few said they wanted more clarity on the branch licensing policy under the wholly-owned subsidiary model before expanding their networks.
“The number of foreign bank branches in this country is extremely low. So, there is no question of getting a licence and not opening the branch. We apply for a fresh licence as soon as we open a new branch,” said an official, in charge of retail operations of a Mumbai-based foreign bank. The lender had applied for new branch licences about 18 months ago, but is yet to get a response from RBI. “We don't know what is causing the delay. We are ready to open a branch as soon as we get the permission,” the official said.
| SLOW DRIVE | ||||
| Foreign Banks | Branches Opened |
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Banking Corporation
Source: Banks
Some analysts said the spate of mis-selling of complex financial products by foreign banks and instances of frauds in some of the foreign bank branches have made the banking regulator more cautious in offering new branch licences.
Standard Chartered Bank, the largest foreign bank in the country, with 94 branches, has not opened a new branch since end-2009. Its rival Hongkong and Shanghai Banking Corporation, with 50 branches, has also not set up a branch in India this year.
“I don’t know whether it is RBI that has gone slow or the banks have gone slow in applying. It is quite possible the banks themselves are figuring out what is required to be done,” said Naina Lal Kidwai, country head (India) and director (Asia Pacific), HSBC.
“It is clearly the wish of foreign banks to be larger in India...We will also look at wholly-owned subsidiaries as a model, if it allows us to have more branches There are many ways of servicing customers. Opening more branches is one of them. Not having brick-and-mortar branches have forced us to look at options like mobile banking, internet platform and ATMs (automated teller machines),” she added.
According to Monish Shah, a director at Deloitte in India, the uncertain macro-economic environment and the lack of regulatory clarity on branch licensing under the wholly-owned subsidiary model has slowed the branch expansion of foreign banks in India.
“There is almost an element of certainty that those foreign banks, which have long-term commitment in India will form wholly-owned subsidiaries once the guidelines are framed. This could be a reason why they are slow in opening new branches,” said Ashvin Parekh, national leader (global financial services), Ernst & Young.
Bankers said only a few—two or three branch licences—have been issued in the past several months to foreign banks that were either setting up banking operations for the first time in India or have limited presence in the country.
In June, Australia and New Zealand (ANZ) Banking Group re-started banking operations in India after a gap of nearly a decade by opening its first branch in Mumbai. Earlier this year, Zurich-based Credit Suisse said it had secured RBI’s nod to open its first bank branch in India.
“None of the top foreign banks have been given a licence to open a branch in the past few months. We don’t know the reason, RBI has the answer,” said a top official of a foreign bank in India.
Going by India's commitment to the World Trade Organisation, RBI has agreed to permit minimum 12 branches of foreign banks every year. In the past, the central bank has allowed foreign banks to open 17-18 branches.
