RBI offers new branch licences to StanChart, Deutsche Bank

Foreign lenders may have to wait longer for wholly owned subsidiary model guidelines.

After more than a year, the Reserve Bank of India (RBI) has started offering new branch licences to foreign banks that have a large network of branches. Industry players say this indicates further delay in framing guidelines for the wholly-owned subsidiary model for foreign lenders in India.

The top seven foreign lenders in the country, which account for over 70 per cent of foreign bank branches, have not added a single branch to their network this year, though they had applied to RBI for new branch licences.

According to bankers, in the last few weeks, RBI offered new licences to Standard Chartered Bank and Deutsche Bank. With 94 branches, Standard Chartered has the largest network among foreign banks in India. The bank received three new licences and plans to open the branches next year. Deutsche Bank, which has 15 branches, has secured licences to open branches in Ahmedabad and Surat.

“I think RBI held back on issuing new branch licences to large foreign banks primarily because of two reasons. First, there was some regulatory discomfort over governance and control in some of these banks. Second, RBI also wanted to link the new branch licensing process to the subsidiarisation model. It was probably waiting till the guidelines for this model were finalised,” said a senior official with a foreign bank, requesting anonymity. “Perhaps it has realised the progress on the subsidiarisation front is not happening at the pace anticipated earlier and so, decided to offer new licences.”

In January, RBI had released a discussion paper on the presence of foreign banks in India and had invited feedback from the public. Foreign banks had given their views to RBI in the first week of March.

“It is currently under the consideration of the ministry of finance and RBI. We have not received any communication on this since March,” said an official with another foreign bank.

Bankers said foreign lenders had asked RBI to sort issues related to capital gain tax, priority sector requirements and the branch licensing policy.

According to India’s commitment to the World Trade Organisation, RBI had agreed to offer at least 12 branch licences to foreign banks every year. In the past, the central bank had allowed the opening of 17-18 foreign bank branches in a year. However, in last one to one and a half years, RBI had given branch licences to foreign banks that were foraying into India or had a limited number of branches.

In June, Australia and New Zealand (ANZ) Banking Group re-entered India after a gap of nearly a decade, and had opened its first branch in Mumbai. Earlier this year, Zurich-based Credit Suisse said it had secured RBI’s approval to open its first branch in India. In September, Industrial and Commercial Bank of China, the world’s largest bank, opened its first branch in India.

Source: Business Standard