The year 2014 may prove to be a litmus test for new banking sector entrants,but 2013 has been the pressure point for foreign banks in India. While the RBIs easing of norms for subsidiarisation of foreign banks has been a positive,concerns over priority sector lending remain.
The RBI had,in 2012,asked foreign banks with more than 20 branches in the country to lend up to 40 per cent of their adjusted net bank credit to priority sectors,with an 18 per cent exposure to agriculture. Most foreign banks,though,citing their past experience and lack of rural linkages,have been keen to go back to the earlier norms that required them to lend 32 per cent of their net bank credit to priority sectors such as export and small scale industries.
Backing their stand,a new report by the British High Commission has said that one size does not fit all and public,private and foreign banks must be assigned priority sector lending (PSL) targets that conform to their business models. The report,titled Re-prioritizing Priority Sector Lending,has pointed out that though credit supply to agriculture has increased,it does not seem to have improved the sectors productivity.
Besides a regression analysis that reveals a blunted impact of PSL when viewed in terms of incremental output in priority sectors,the report also argues that all banks should not be asked to lend 18 per cent of their PSL targets to agriculture,which should be the domain of state owned banks and cooperatives and RRBs. Instead,for foreign banks,PSL should include sectors such as infrastructure,energy,health care,water supply and agriculture research and development.
A top executive with a foreign bank said it could also impact their plans for setting up a wholly-owned subsidiary. Already,the RBIs promise of near national treatment to WOS has raised red flags and most foreign banks want a clarification on exactly what this would entail.
Surabhi is a Special Correspondent based in New Delhi.
surabhi.prasad@expressindia.com
