The Hindu : Business : India offers level-playing field for foreign banks

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Tuesday, Nov 27, 2007
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India offers level-playing field for foreign banks

Special Correspondent

‘The RBI’s regulatory regime is non-discriminatory’

29 foreign banks operating in India
Growing share in forex market

MUMBAI: The Reserve Bank of India (RBI) on Monday said that the Indian regulatory regime is essentially non-discriminatory as between branches of foreign banks and domestic banks, in regard to authorisation or the scope of their operations.

“Though some hold that there is some positive discrimination in favour of the foreign banks, Indian regulatory regime is in fact much more equitable and provides a far more level-playing field to the foreign banks, than in many other jurisdictions, both developed and emerging economies, said V. Leeladhar, Deputy Governor, RBI, while delivering a special address on ‘The evolution of banking regulation in India-96 — a retrospect on some aspects’, at the Bankers’ Conference (BANCON) 2007, here.

At present, there are 29 foreign banks operating in India. “Among some circles, a doubt is sometimes expressed as to whether the regulatory environment in India is liberal in regard to the functioning of the foreign banks and whether the regulatory approach towards foreign participation in the Indian banking system is consistent with the liberalised environment. Undoubtedly, the facts indicate that the regulatory regime followed by the Reserve Bank in respect of foreign banks is non-discriminatory, and is, in fact, very liberal by global standards,” said Mr. Leeladhar.

Furthermore, the share of the foreign banks in the foreign exchange market in India was also significant and had registered a rising trend. For instance, as against their share of 41 per cent in the total foreign exchange turnover during 2005-06, it was 52 per cent during the first half of 2007-08.

In totality, Mr. Leeladhar said it would be extremely difficult to justify the notion that the foreign and non-resident participation in the Indian banking markets was insignificant or restricted and that the policy or regulatory environment was not conducive to it. Further Mr. Leeladhar said that a view has been expressed in certain quarters that the Indian regulatory framework should migrate to principles-based regulation from the current rules-based approach. “In any regulatory regime, complete reliance on a principles-based approach would rarely be a feasible option since the high-level principles would need to be underpinned by the detailed rules at the operational level, to achieve the regulatory objectives.”

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