Japan has formally approached the finance ministry and the banking regulator, seeking relaxation in the guidelines for its banks operating in India.
Mizuho Corporate Bank Ltd and The Bank of Tokyo- Mitsubishi UFJ Ltd have branches in India, while Sumitomo Mitsui Banking Corp has a representative office in India.
Japan has asked the government and the Reserve Bank of India (RBI) to relax the norms concerning financial inclusion for its banks.
According to the present norms by RBI on foreign banks, these lenders would have to first open branches in non-metros and then shift to urban centres.
RBI also stipulates that 32 per cent foreign banks' lending has to be to the priority sector. That includes agriculture, small scale industries, export credit and education loans, among others, against 40 per cent for domestic banks.
"This is hampering their profit margins, as their main clientele consists large corporate entities. So, we are seeking relaxation on this particular issue. The strength of our banks lies in lending to big corporate entities and not for rural activities. So, we have formally asked the finance ministry and RBI to loosen the rules as far as financial inclusion is concerned," a senior Japanese government official told Business Standard.
According to the official, who did not want to be named, the government has given them a "positive reply" and an announcement in this regard could be made in the coming Union Budget.
In a discussion paper issued by RBI recently, the regulator suggested increasing the percentage of their lending to priority sectors from 32 per cent to 40 per cent, at par with domestic banks, if the foreign banks were desirous of gaining national treatment. Foreign banks having 20 or more branches in the country are being brought at par with domestic banks for priority sector targets in a phased manner over a five-year period, starting April 1.
Sameer Gupta of Ernst and Young said any relaxation of the norms would negate the very ethos of financial inclusion that RBI had been aggressively pursuing for the last several years.
Gupta said, "These (foreign) banks are often happy with the one-branch concept. RBI has now made it clear that if these banks want to exist and grow in India, then the rigour has to be the same as domestic banks. So, having a presence in non-metro or Tier-II cities will remain a priority."
