New Delhi: The global financial crisis may force the Reserve Bank of India (RBI) to delay the road map for further liberalizing the banking sector by six-eight months from the scheduled date of April, a finance ministry official said.
Collateral damage: Reserve Bank governor D. Subbarao. Uncertainty in the global economy may force the Indian banking regulator to delay opening the sector for foreign players. J. Scott Applewhite / AP
“Opening of the banking sector to foreign players could be delayed by six-eight months due to present uncertain global times,” the official said on condition of anonymity.
RBI had earlier stated, “The second phase will commence in April 2009 after a review of the experience gained and after due consultation with all the stakeholders in the banking sector.”
The review would examine issues concerning extension of national treatment to wholly owned subsidiary, dilution of stake and permitting mergers/acquisitions of any private sector banks in India by a foreign bank in the second phase, RBI had said.
As per the World Trade Organization agreement, India has committed 12 branches of foreign banks in a year.
However, RBI has been more liberal than the commitments. Between 2003 and October 2007, the central bank gave approval to about 75 new foreign bank branches. But a person familiar with the matter said foreign banks should be ready to open branches in tier-II cities. “Unless they are ready to go to tier-II cities, it is difficult to provide licence,” the person said.
The first phase of liberalization, which started in March 2005, permitted the foreign banks to establish a presence by way of setting up a wholly owned banking subsidiary or conversion of the existing branches into a subsidiary.
To facilitate this, RBI also issued detailed guidelines. The guidelines covered the eligibility criteria of the applicant foreign banks such as ownership pattern, financial soundness, supervisory rating and the international ranking.