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New Delhi, March 9: The government will soon allow foreign banks to open more branches in the country.
A high-level meeting held recently, which was attended by representatives of finance and external affairs ministries, the Reserve Bank of India and the country’s top security agencies, has decided to allow foreign banks to open a clutch of new branches. At present, there is a cap on the number of branches they are allowed to open.
The formal permission, for which the US and several European governments are lobbying, will take some time to come. Sources, however, said an in-principle decision has been taken to go ahead with the move.
This is being seen as a temporary sop for the Western powers till a greater FDI is allowed in Indian banks ' an issue which is held up due to opposition from the Left parties. The US government in particular has been lobbying for a more relaxed policy for foreign banks in India. The US has been pushing Citibank’s application to expand its Indian operations to the hinterland.
“In the first phase, some 18 branches will be given the go-ahead, including three each of ABN Amro and Deutsche. The banks will be allowed to open branches within the next month or so,” officials said. “However, we will not give them branches in the metros. Instead, they will have to open branches in other cities which we feel are under-banked.”
Officials said the government has decided to go beyond the existing World Trade Organisation commitment of allowing 12 branches a year for new and existing foreign banks and follow a far more liberal policy. This will mean applications made by banks like Citi to set up some 20 new branches in the coming financial year will be considered and ultimately allowed, though may not be at one go.
There are some 32 MNC banks, which operate in India with just 215 branches. Allowing about a score of them to add 12 branches each could double the number of foreign bank branches in a short time.
The move is an attempt to stem demands of the US and British governments which want India to treat their banks in the same way as Singapore-based ones. Under a treaty signed with Singapore, the island nation’s banks are treated on a par with their Indian counterparts and are allowed to enter all banking areas.
Officials said there are also pressures from the country’s economic allies like the US and the UK to allow more FDI in Indian banks.