India 'generous' with foreign banks: LeeladharBS Reporter / Mumbai November 26, 2007V Leeladhar, Deputy Governor, Reserve Bank of India (RBI), today said India has been "quite generous and not merely liberal" on branch authorisation policy for foreign banks operating in the country.Leeladhar was speaking at the Bankers' Conference (BANCON) 2007 in Mumbai this morning.Leeladhar said: "At present, there are 29 foreign banks operating in India with a network of 273 branches and 871 off-site ATMs. Among some circles, a doubt is sometimes expressed as to whether the regulatory environment in India is liberal in regard to the functioning of the foreign banks and whether the regulatory approach towards foreign participation in the Indian banking system is consistent with liberalized environment. Undoubtedly, the facts indicate that regulatory regime followed by the Reserve Bank in respect of foreign banks is non-discriminatory, and is, in fact, very liberal by global standards. "Here are a few facts which bear out the contention:* India issues a single class of banking licence to foreign banks and does not require them to graduate from a lower to a higher category of banking licence over a number of years, as is the practice followed in certain other jurisdictions.* This single class of licence places them virtually on the same footing as an Indian bank and does not place any restrictions on the scope of their operations. Thus, a foreign bank can undertake, from the very first day of its operations, any or all of the activities permitted to an Indian bank and all foreign banks can carry on both retail as well as wholesale banking business. This is in contrast with practices in many other countries.* No restrictions have been placed on establishment of non-banking financial subsidiaries in India by the foreign banks or of their group companies. * Deposit insurance cover is uniformly available to all foreign banks at a non-discriminatory rate of premium. In many other countries there is a discriminatory regime. * The prudential norms applicable to the foreign banks for capital adequacy, income recognition and asset classification, etc., are, by and large, the same as for the Indian banks. Other prudential norms such as those for the exposure limits, investment valuation, etc., are the same as those applicable to the Indian banks. * Unlike some of the countries where overall exposure limits have been placed on the foreign-country related business, India has not placed any restriction on the kind of business that can be routed through the branches of foreign banks. This has been advantageous to the foreign bank branches as the entire home-country business is generally routed through these branches. Substantial FII business is also handled exclusively by the foreign banks.* In fact, some Indian banks contend that certain amount of positive discrimination exists in favour of foreign banks by way of lower priority sector lending requirement at 32% of the adjusted net bank credit as against a level of 40% required for the Indian banks. Unlike in the case of Indian banks, the sub-ceiling in respect of agricultural advances is also not applicable to foreign banks whereas export credit granted by the foreign banks can be reckoned towards priority sector lending obligation, which is not permitted for the Indian banks.* Notably, in terms of our WTO commitment, licences for new foreign banks may be denied when the share of foreign banks
