Dinesh Kamath's Editorial 'RBI’s new policies for foreign banks' that was published in Newsband

RBI’s new policies for foreign banks

Reserve Bank of India is coming up with policies that will control the foreign banks that operate in India. This is a great move!

The foreign banks are promised near national treatment — being able to open branches anywhere on a par with Indian banks and participate in the development of the Indian financial sector. This will bring stability to our economy.

RBI has also taken steps to prevent the possibility of foreign banks dominating the Indian financial sector. If they grow above a certain size, there will be a compulsion for them to appoint Indian nationals on their boards of directors up to a certain proportion.

The government and the RBI envisage a productive role for foreign banks in India subject to their following certain prescribed norms. After RBI came up with these new policies for the foreign banks, the leading banks of the world are adopting a wait-and-watch attitude. A few of the big ones are not happy with the new policies.

That is not surprising, given that the ethos of the foreign banks was not oriented towards activities such as lending to small and medium enterprises and agriculture.

The policy that has been adopted by RBI to regulate the already operating and the new entrants is quite balanced one. Not only does it take into consideration the role of foreign banks in development of Indian economy but it also sees amid development there is financial stability which is a key for a fragile economy like ours.

The foreign banks, in  fact, should be made to take part in the development of the region or state where they operate. The foreign banks should stress the need to contribute their might in vital sectors like Agriculture, micro, small and medium enterprises and in promoting medium sized industries. The minimum norms of lending to such key sectors should also be applied to them also.

It is good that RBI is bringing foreign Banks at par with the domestically incorporated banks. Streamlining of legislation for Banks with different national origin will help the Indian Financial System considerably. Banking industry is, after all, considered as Back bone of financial system.