Foreign banks on Indian Lands

Foreign banks whose branch offices are in India but they are incorporated outside India, have their head office in a foreign country are allowed to set up their subsidiaries in India .They have to operate their business by following all the rules and regulations laid down by the RBI - Reserve Bank of India. They have to pay more attention to the priority sector by giving them a special place in bank lending. These banks are expected to follow all the banking regulations, just like any other domestic banks.

Middle India is gaining popularity among foreign banks in the country. It is partly due to regulatory compulsion but also because of growing business opportunities in smaller towns. Recently the finance ministry also declared that it is planning measures that will allow foreign banks to convert their branches in India into wholly owned subsidiaries without attracting stamp duty or capital gains tax.

Foreign banks now constitute the largest segment of scheduled commercial banks in the country. According to Reserve Bank of India data, there are 41 foreign banks, 26 state-run lenders and 20 private-sector banks in the country. Seems like, India is a profitable market as well for foreign lenders.

With Indian firms increasingly looking for investments overseas, foreign banks will play a critical role in raising money for them, connecting them with a global clientele and consumers. No one can deny this. At the same time, they need to look at Indian business opportunities differently. Instead of focusing only on corporate clients and urban consumers, they can reach out to the low-income groups and deliver banking services at an affordable cost and still make money. There is enormous scope because only 60% of the adult population in India has bank accounts. In rural areas, the coverage among the adult population is ever lower.

It is a well written article Christopher. I would like to add that Foreign banks have long sought these changes to the law which they say have encouraged them to expand their operations in India. In fact Standard Chartered Bank is becoming the largest foreign bank in India for its operations in banking and financial services followed by HSBC and Citibank. We require foreign banks in the country and also in agriculture. They can bring in product innovation in lending to agriculture and SMEs rather than derivatives. I also think that private lenders and foreign banks would bring in a revolution in agriculture finance as they did in retail and technology, helping public sector banks learn in the process.

If we notice, Foreign banks in India are getting more aggressive in their product offerings and looking at a broader audience segments. Rural market has also become an important segment for these foreign banks to widen the reach of banking services in under-penetrated markets.

Well you have shared a really nice article, I didn't have so much knowledge about these foreign banks. But now I can shared it with my friends and give them knowledge.