Expect RBI to soon relax norms for entry of foreign banks: Rao

The Reserve Bank is soon expected to relax norms for entry of foreign banks into the country, a top government official today said.

"RBI is very soon, I believe, is going to announce a very progressive policy for permitting opening of more foreign banks..." Commerce Secretary S R Rao said.

He was speaking at a CII function on 'Driving South Asia Economic Integration'.

"I do hope that with far more regional integration of economies and commerce, the market forces themselves will demand that each of the central banks of sovereign nations take similar calls and I am sure the time is propitious and it is going to happen sooner than later," he said.

Currently, expansion of foreign banks in India is on a reciprocal basis.

India and Pakistan are negotiating issues with regard to opening up of bank branches in each other territory to facilitate trade and commerce.

As per the World Trade Organisation agreement, India allows opening of 12 branches of foreign banks in a year.

Last year, the RBI in a discussion paper suggested that foreign banks should be incentivised to operate in India as wholly-owned subsidiaries, as against the current system of having presence through branch network.

"On balance, the subsidiary model has clear advantages over the branch model despite certain downside risks... There may be a need to incentivise the subsidiary form of presence of foreign banks," it had said.

At present, there are about 34 foreign banks operating in India, with five major banks, including StanChart, HSBC, Citibank and Deutsche, accounting for over 70 per cent of the total asset size of overseas lenders in the country.

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