India should open up banking sector: Expert

India should open up its banking sector to foreign banks and tap the strength of international financial institutions, an expert has said.

Piyush Gupta, Chief Executive of Singapore's DBS Group Holdings, said India could tap foreign banks to bridge its capital shortfall.

Speaking at the second South Asian Diaspora Convention here yesterday, Gupta said countries such as India often look to banks to fulfil multiple agendas, which could include those for the financial sector and rural development.

"There are multiple requirements that a country has, and you need to find different participants to be able to address different sets of those requirements," Gupta said.

He announced that DBS would open 50 branches in India once restrictions on setting up of branches were removed.

DBS is rated the fourth largest foreign bank in India with 12 branches and 37 ATMs since it entered the country's market in 1995.

He said red tape should be reduced and companies allowed to raise capital from overseas markets.

India has recently allowed companies to list overseas without first being listed at home.

But this comes with a two-year trial and restrictions on the use of funds if they list only abroad, Gupta said.

He said Indian banks issuing bonds overseas face restrictions such as five-year borrowing period and interest rate capped at benchmark Libor rate plus 5 per cent.

"Fundamentally, you're disabling this whole range of companies from realistically accessing the international capital markets," he said.