New rules may allow foreigners to take over of Indian banks

RBI Governor Raghuram Rajan says policy on foreign banks will come out soon

The Reserve Bank of India (RBI) will soon come out with new rules for the entry of foreign banks that may even allow them to take over Indian banks, RBI Governor Raghuram Rajan has said.

"That is going to be a big big opening because one could even contemplate taking over Indian banks, small Indian banks and so on," he said at an event of the Institute of International Finance here Saturday.

"We're coming out with details on that in the next couple of weeks."

"By setting up wholly owned subsidiaries, foreign banks will get more opportunities to expand in India," Rajan said. "We will allow you a lot of freedom on branching."

Currently, foreign banks in India operate as branches of the foreign parent and face restrictions on the number of branches they can set up in the country.

The banking sector reforms, particularly those facilitating entry of foreign banks in India in a "big way", is part of the five pillars of reforms, including monetary policy framework that the RBI is going to implement in the next few years, Rajan said.

"For foreign banks, if you adopt a wholly-owned subsidiaries structure, we will allow you near national treatment," but with a couple of conditions, he said.

"One reciprocity -- your country should allow the same to our own banks -- and second you come through one route - either you have a branch or you have a subsidiary; don't do both."

"That is primarily to simplify our regulatory function, but also to make it clean," he said.

Acknowledging that price situation was an issue for the economy, Rajan said the ordinary monetary policy would be focused on containing inflation and not directed towards external sectors.

The RBI is scheduled to present the quarterly review of the monetary policy Oct 29.

Referring to the US government shutdown, Rajan expressed full confidence in the American economy and ruled out selling of US treasury bills that India holds to the tune of $59.1 billion.