Reciprocity, compliance record comes under lens

RESERVE BANK OF INDIA ANNUAL REPORT 2005-06

Foreign bank's branch expansion norms.

The Reserve Bank of India (RBI) will consider every foreign bank's and its group's track record of compliance and functioning in the global markets while evaluating applications for annual branch expansion plans.

The central bank will also seek reports from the applicant bank's home country supervisors, if necessary.

RBI has laid down certain parameters to be considered as part of branch authorisation for foreign banks. These parameters are in addition to those already laid down for Indian banks, which are also applicable for foreign banks.

The treatment extended to Indian banks in the home country of the applicant foreign bank will also be considered while evaluating applications for branch expansion. Bilateral and diplomatic relations between India and the home country of the applicant bank would also be taken into account.

The branch authorisation policy for Indian banks is applicable to foreign banks subject to certain criteria. Foreign banks are required to bring an assigned capital of $25 million up front at the time of opening their first branch in India.

This requirement is also to be met by existing foreign banks having only one branch before their request for opening of second branch is considered.

In 2005, eight foreign banks were granted permission to open 13 branches. This is one more than the existing World Trade Organisation (WTO) commitment of 12 branches in a year. This year so far (up to July) four foreign banks have been given permission to open 13 branches.

While one foreign bank was given approval to open a representative office in 2005, seven foreign banks have already got approval to open representative offices this calendar year.

At present, 31 representative offices of foreign banks are operating in India.