The Reserve Bank of India (RBI) will soon issue new rules for the entry of foreign banks, under which they will be compelled to set up local branches and lend more in the country’s underbanked rural areas.
The new rule to allow foreign banks to set up wholly-owned subsidiaries will not only enable them to get more opportunities to expand in India, but also face fewer restrictions on branch openings.
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Under the existing rules, foreign banks are restricted to open not more than 12 branches each year and raise funds. However, to open local subsidiaries, foreign lenders should operate under the Indian laws and in exchange their governments must allow banks in the country to set up branches overseas.
Bankers were quoted by The Wall Street Journal as saying that they expect the new regulations to ease such limits for banks that decide to incorporate in India, though taking that step could subject them to other obligations, such as expanding lending to low-income customers.
Additionally, the international banks will also be allowed to purchase few local banks.
Meanwhile, Citibank India chief financial officer Abhijit Sen told the news agency that the process of conversion from a branch into a wholly owned subsidiary has several implications and the details of the new rules must be weighed before any decision.
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