The US business body has welcomed the new RBI rules governing access for foreign banks operating in India, describing the move as a positive step and called for opening up of other areas in particular the insurance sector.
The central bank on Wednesday permitted wholly-owned subsidiary (WOS) of foreign banks to acquire domestic private sector banks as well as set up branches anywhere in the country. It also allowed foreign bank subsidiary to list on local stock exchanges.
"I am pleased India has begun the process of liberalising access to its banking sector for foreign institutions," Senator Mark Warner, Co-Chair of the Senate India caucus said.
"While I have concerns about some of the prerequisites accompanying the reforms, it is a positive first step towards boosting foreign direct investment that will be beneficial for both India and the United States," Warner said.
"I look forward to additional reforms from the Indian government and central bank in the months to come," Warner said as the new RBI regulations lift the restriction on the number of branches foreign banks can open annually in India if they set up a separately capitalised subsidiary with at least 5 billion rupees of equity.
Additionally, the Reserve Bank mandates rules governing the composition of boards of directors of the subsidiary, requiring at least one third of directors to be independent of the bank and at least half to be Indian nationals, with one third residing in India.
The liberalisation applies only to banks from countries offering Indian institutions comity.
The US India Business Council (USIBC) appreciates that the reform momentum continues full speed ahead.
"With banking subsidiaries now open for investment, if only we could see the Insurance Sector lift FDI caps to at least 49 per cent, USIBC remains convinced this will bring much-needed capital to the country and help excite investor interest," USIBC president, Ron Somers, said.
The announcement comes on the heels of a hearing Senator Warner chaired in the Senate Banking Committee entitled, "Assessing the Investment Climate and Improving Market Access in Financial Services in India," on September 25, 2013.
The hearing explored the burgeoning economic relationship between the United States and India, and opportunities for growth and investment in India's financial services sector.
Less than a month earlier, the RBI Governor, Raghuram Rajan, had alerted the Washington audience about opening of India for foreign banks.
"That is going to be a big big opening because -- one could even contemplate taking over Indian banks, small Indian banks and so on," Rajan had said.
