Foreign banks get RBI nod to up presence in economy

Subsidiaries will have to earmark 40 lending to priority sector.

The Reserve Bank of India RBI has finally come out with its detailed guidelines on how foreign banks will operate in the country. The guidelines posted on the RBI website on Wednesday says they will enjoy 8220;nearly equal terms with local lenders if they move to a wholly owned subsidiary structure8221;.

The advantages for RBI are many. Banks will come under its financial control and will be subject to rules on expansion for business,priority sector lending and exposure to foreign risks in the wake of the global financial crisis. In its second quarter review of the monetary policy,RBI Governor Raghuram Rajan had said he will issue the detailed guidelines by mid November.

The guidelines are generally as expected and could expand opportunities for international banks in the country,since they would have greater freedom to open branches and would be able to participate more fully in the development of the Indian financial sector. If the banks,in future,reduce their equity to 74 per cent they would need to list in the stock market the rules noted.

Talking about the developments a few days ago,HSBC India chief Naina Lal Kidwai had said the priority sector norms too were,more or less,what the branches were expected to comply with. At 40 per cent of their total credit to be calibrated over several years,she felt these were not onerous difficulties.

The RBI guidelines said foreign-owned banks operating as subsidiaries would be required to earmark 40 per cent of their lending to the priority sector,which includes undeserved parts of the economy and agriculture,the same obligation as for domestic banks.

The first clutch of banks which would need to consider the offer will be Citigroup,HSBC,and Standard Chartered. We welcome the guidelines, a Standard Chartered spokesman said. A Citi spokesman could not be immediately reached for comment.

Foreign banks would also be allowed to buy a local private-sector lender only after a review of the overall extent of foreign bank penetration. To prevent foreign domination of the sector,the RBI also said it would place restrictions on the further entry of new wholly owned subsidiaries of foreign banks if and when the assets of institutions owned abroad exceed 20 per cent of the countrys total.

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Indias banking system is dominated by state banks,which accounted for more than two-thirds of the sectors assets at March-end 2012. Foreign banks accounted for 4.3 per cent of deposits as of March 2012.

Special swap windows net 15.2 bn so far,says Reserve Bank of India

MUMBAI: The Reserve Bank of India on Wednesday said it has received 15.2 billion so far from the special swap windows opened to attract FCNR-B deposits as well the special ECB window facility for banks.

These windows will remain open till the end of this month. The central bank had announced these schemes on September 4,the day the new Governor Raghuram Rajan took over to contain the flight of the rupee. PTI