A day ahead of the visit of a high-level US delegation led by treasury secretary Timothy Geithner, India has ruled out hiking the annual threshold for new branches that foreign banks can set up in the country. Keen on prodding foreign banks to adopt the wholly-owned subsidiary (WOS) route for expansion, New Delhi doesn’t favour any special dispensation for US banks in adding new branches.
Commenting on the US’ demand for greater access to India’s financial services sector, a senior finance ministry official said that India already has a policy ‘unilaterally’ allowing a maximum of 18 foreign bank branches annually, as against its World Trade Organisation commitment to permit 12 new branch licences a year. “There is no question of doing more now,” the official said.
The government reckons that the WOS route would give the Reserve Bank of India (RBI) better regulatory control over foreign banks, all of which are currently operating through the branch route in India.
US banks keen to expand their presence in India include Citibank, Bank of America and JPMorgan Chase.
As on August 1, 41 foreign banks were operating 324 branches in India.
The issue assumes significance due to the discussions that Geithner is slated to hold with Prime Minister Manmohan Singh and finance minister P Chidambaram on Tuesday and the interaction that Federal Reserve chairman Ben Bernanke may have with RBI governor D Subbarao on Wednesday at the RBI headquarters Mumbai.
Sources said the agenda is likely to include greater market access for US financial services firms in the Indian market, especially in the light of the UPA government’s recent nod for 49% foreign equity in the insurance and pension sectors as well as the talk of a fervent push for new bank licences.
India, with a population of over 1 billion people and a growing chunk of high net worth individuals, is a lucrative market for foreign banks such as HSBC, Citi and Standard Chartered, which reportedly have a pre-tax profits of over $2 billion from India. Though these foreign banks have only less than 0.5% of the country’s total bank branches and around 7% of the banking sector assets; they have managed to corner over a tenth of the overall profits.
According to international trade experts, there is no inconsistency with WTO rules if a country is doing more than its commitments. In fact, it reflects that particular country’s commitment to a free and fair multilateral trading system, they said.
“India as a developing country has the benefit of less than full reciprocity norm. By allowing more foreign branches than our WTO commitments, India is giving the developed countries more market access in our banking sector," said Ram Upendra Das, senior fellow, Research and Information System for Developing Countries, a New Delhi-based think tank.
"Therefore, in return, it is natural for India to expect more market access in some other sector in the US. If not in the banking sector, we can ask them for more market access in another sector of our interest, say, audio-visual services," Das said.