Nov. 11 – After markets closed on Wednesday, the Reserve Bank of India, the country’s Central Bank, announced a series of new regulations that will allow foreign banks much greater access to the country’s domestic market. The domestic market had previously been highly protected against added competition from foreign banks.
In essence, under the new regulations, foreign banks will be treated the same as domestic banks.
In order to be eligible under the new regulations, foreign banks much switch from how they currently operate in India by upgrading from a branch to a wholly owned subsidiary structure. Upon forming the subsidiary, foreign banks are required to invest at least US$80 million (5 billion rupees).
Furthermore, only banks that come from countries that agree to allow Indian banks access to their own markets will be granted these new benefits.
Additionally, once operating as a subsidiary the foreign banks will be required to allocate 40 percent of their lending to the “priority sector,” which includes agriculture and under-served parts of the economy. Domestic banks are already required to follow this regulation – it is hoped that this will funnel money to the lower classes of Indian society and help jumpstart the economy.