Is It Time To Open Up

Is It Time to Open Up
to Foreign Banks?
T T Ram Mohan
T T Ram Mohan ([email protected]) is at the
Indian Institute of Management, Ahmedabad.
The HT Parekh Finance Column will appear in
the second week of every month and will have
contributions from a panel of columnists:
T T Ram Mohan, C P Chandrasekhar, Avinash
Persaud and Suman Bery.
What are the benefits and costs to
India of an enlarged foreign bank
presence? Going by the three
important criteria of access to
financial services, efficiency and
provision of credit, it is unlikely
that foreign banks can do more
than what the Indian banking
system can provide. Add to that
the risks posed by larger
operations by foreign banks and
there is a case for revisiting the
2005 road map of the Reserve
Bank of India which indicated
that these banks may be able to
expand their presence after 2009.
In 2005, the Reserve Bank of India
(RBI) announced a road map for the
presence of foreign banks in India. The
policy stated that foreign bank expansion
in India would proceed in two phases. In
Phase I, the RBI promised to go beyond the
existing commitment of 12 new branches
for foreign banks in a year. This was not
giving away a great deal in light of the
pace of expansion of branches of the new
private banks.
In Phase I, acquisition of private banks
would be permitted only in private sector
banks identified for restructuring and that
too in a phased manner. In general, the
RBI has not favoured a foreign bank having
a stake of more than 5 per cent in a private
bank, although there are exceptions such
as Ing Vysya Bank.
In Phase II, which was to commence in
April 2009, foreign banks could contemplate< ...
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