New policy to allow Foreign Banks to expand in India
India has long been a source of frustration for international banks, in large part because regulations limited the number of new branches opened by all foreign banks to just 12 a year.
Now, India’s banking regulator is expected to adopt a set of rules this year that will allow foreign banks to vastly increase their retail presence in the country.
The new rules, which could be adopted as early as June, could open the door for banks such as HSBC Holdings PLC, Citigroup Inc. and Standard Chartered PLC to open more retail branches to serve India’s huge market.
Currently, the Reserve Bank of India issues a total of 12 new branch licenses annually for all of the 34 foreign banks present in India, as well as for any new entrants. For years, banks have been demanding more licenses; Standard Chartered, for example, still has 94 branches, more than a century and a half after launching its Indian operation.
Under the proposed rules, foreign banks operating in India would have to turn their local operations into wholly owned subsidiaries of the parent company, according to bankers and analysts who have reviewed the draft proposal. That means the Indian subsidiaries would be required to have their own capital, and couldn’t tap their parents’ balance sheets.
The banks likely to be the most affected by the new regulation are Standard Chartered, Citigroup and HSBC, which have the largest retail presence among all foreign players.