ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Caution over Foreign Banks

T T Ram Mohan’s analysis of the Reserve Bank of India’s (RBI) discussion paper (“Foreign Banks: RBI Gets the Balance Right”, EPW, 9 April 2011) on foreign banks is enlightening and appropriate as far as role of foreign banks in the Indian economy is concerned. While offering more licences to foreign banks, RBI’s objective may be to strengthen the financial inclusion which is an important priority at the present juncture. However, these foreign banks may not fall in line with RBI’s desire as they operate only in centres which have a large business potential. With regard to reaching the 40% target of priority sector lending, foreign banks have failed. Further, foreign banks can outpace Indian public sector banks due to their larger financial strengths and by drawing more customers into their fold. India’s primary need in the banking system is to offer innovative banking services in unbanked areas. Will foreign banks accept that challenge? If foreign banks are promoted as subsidiaries of parent banks then, perhaps, they can meet the local priorities better. In order to make foreign banks more amenable to Indian conditions, regulatory measures should be made more rational as well as strict. The RBI has emerged as a prudent central banker and must consider the positives and negatives of the entire matter while giving licences to foreign banks.

Saroj Upadhyay

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