After delaying liberalisation for foreign banks by over a year due to global financial meltdown, the Reserve Bank on Tuesday decided to review its position by September this year in the wake of improving conditions worldwide. The central bank will prepare a discussion paper on the mode of presence of foreign banks through branch or wholly- owned subsidiary (WOS) by September 2010, RBI said in its annual monetary policy for 2010-11.
The RBI in its last annual monetary policy in 2009 had put on hold plans for liberalising the operation of foreign banks in the country in view of global financial turmoil.
When the revision of presence of foreign banks in India was due in April 2009, the global financial markets were in turmoil and there were uncertainties surrounding the financial strength of banks around the world, it said.
In February 2005, the Reserve Bank had released the ‘roadmap for presence of foreign banks in India’ laying out a two-track and gradualist approach aimed at increasing the efficiency and stability of the banking sector in India.
The first track was the consolidation of the domestic banking system, both in the private and public sectors, and the second track was the gradual enhancement of foreign banks in a synchronised manner, it said.
The roadmap, it said, was divided into two phases, the first phase spanning the period March 2005 March 2009, and the second phase beginning after a review of the experience gained in the first phase.
In the first phase, foreign banks wishing to establish presence in India for the first time could either choose to operate through branch presence or set up a 100 per cent WOS. Foreign banks already operating in India were also allowed to convert their existing branches to WOS while following the one-mode presence criterion.
The WOS was to be treated at par with the existing branches of foreign banks for branch expansion in India. No foreign bank, however, applied to establish itself as a WOS or to convert to a WOS during the first phase, it added.
As per the World Trade Organisation agreement, India has committed 12 branches of foreign banks in a year. As of March 2008, about 31 foreign banks were operating in India.