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The regulatory treatment to foreign banks in the country is non-discriminatory, claims the Reserve Bank of India (RBI) Deputy Governor R Gandhi.
"India has a long history of welcoming foreign banks, while cautiously allowing its expansion, keeping the country's needs in perspective... The permitted and desired structure of foreign banks is in effect as per the current international ethos. The regulatory and supervisory approaches are, by and large, common and non-discriminatory. Welcome to India," Gandhi said in his keynote speech at the ASIFMA Annual Conference 2014 held at Marina Bay Sands, Singapore.
While the speech was presented on Thursday, it was published on RBI's website on Monday.
Foreign lenders in India often complain that their growth opportunities in India have been limited because of the restrictions imposed on their branch expansion. Also, foreign banks from time to time have requested the regulator to exempt them - fully or partially - from the need to undertake priority sector lending, as they have limited geographical presence and expertise in areas like agriculture and small-scale lending.
But starting from April 1, 2013, foreign lenders, with more than 20 branches in India, have been asked to achieve priority sector lending target of 40 per cent of their aggregate advances (which is at par with domestic scheduled commercial banks) in a phased manner over five years.
The same target is also set for foreign lenders that decide to operate in India through wholly-owned subsidiaries. For foreign banks with less than 20 branches, the overall target has been kept unchanged at 32 per cent. Bankers with top foreign banks in the country have expressed their disappointment in private following this move as they felt that they did not have enough branches or risk management capabilities to meet the new priority sector lending target.But Gandhi believes that large foreign banks are well acquainted with the Indian economy and the revised priority sector lending requirement is not an impossible target for them.
"It may be noted that many of these banks are present in India for more than 100 years and were present even before some of the public sector banks were born. These foreign banks, therefore, not only know the Indian economy well but are also well versed with the culture and psyche of the local populace." he said.
Therefore, it should not be an insurmountable problem for them to comply with the priority sector requirements," he said.
He also added that there is ample growth opportunity for foreign banks under the wholly owned subsidiary set up - a proposal that is yet to find favour with most overseas lenders in the country. While RBI has promised a near-national treatment in branch expansion to foreign banks opting to operate through subsidiaries, one-fourth of their branches opened during a financial year have to be in un-banked and under-banked centres. Foreign lenders generally prefer to operate in metros as majority of their customers reside in these cities.
"There are again plenty of prospects by way of opening branches in under-banked centres. Incidentally, under-banked centres do not necessarily constitute rural areas and many of the centres are located in the fringes of metropolitan and urban areas," Gandhi said.
Currently, out of the total of 318 foreign bank branches, 315 are in urban and metropolitan centres. At the end of October, 2014 there were 44 foreign banks in India operating through branches, while another 45 had presence through representative offices.
