The Hindu Business Line : Cautious approach to foreign bank entry

The Hindu Business Line : Cautious approach to foreign bank entry

It was in early 2005, that I wrote a paper on Functioning of Foreign Banks in India for a WTO Conference organised by Mangalore University. At that time there was not much literature available to know the working of these banks except an old research paper in eighties and data from RBI / IBA sites. My work then was a mere compilation of inventory of foreign banks in India, which were in operation for over a hundred years.

Later I came across a good research paper by a senior official of RBI in their Occassional Papers. During the same year, RBI announced its policy of opening up and offering a road map for more and more foreign banks to operate in India. Some how I felt that not many foreign banks were keen to open offices or branches in India. I firmly believed that they confine themselves to a few metros like Delhi, Mumbai, Calcutta, Chennai, Bangalore and Hyderabad. Their clientele is always elite and these banks are not so much involved in compliance to developmental financing like priority sector financing which is the obligation for PSBs and Private Banks in India. Foreign Banks either deal with High Networth Individuals or Corporate clients only. Their market share is very negligible that it is less than five per cent - both in number of branches or business. I wrote a research paper in the same year 2005 on the sustainability of foreign banks which was presented at an International Conference on Business & Finance organised by ICFAI in Hyderabad that year. My findings are well substantiated too.

It is interesting to read this news item today, after a gap of over five years that thanks to Financial Sector Reforms during last two decades, that PSBs and Private Sector Banks in India have modernised themselves from all angles in their working to become productive and profitable to extend best customer service. Market share of Foreign Banks remains to be the least after all these years. The roadmap of RBI was not encashed by Foreign Banks even after five years. Certainly, RBI being regulator and big brother to the banking system in India has to be cautious in allowing more and more foreign banks in India in order to ensure a perfect level playing field.