Raghuram Rajan: Policy soon to facilitate entry of foreign banks in 'big way'

Oct 13 2013, 16:28 IST
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The new policy with regard to foreign banks is part of five pillars of reforms, says Raghuram Rajan. (AP) The new policy with regard to foreign banks is part of five pillars of reforms, says Raghuram Rajan. (AP)
SummaryNew policy with regard to the foreign banks is part of his five pillars of reforms: Raghuram Rajan

The Reserve Bank of India will soon come out with major reforms in the banking sector that will allow foreign banks to enter India in a big way and even take over domestic lenders, Governor Raghuram Rajan has said.

"That is going to be a big big opening because one could even contemplate taking over Indian banks, small Indian banks and so on," he told a Washington audience on Saturday.

The policy framework for the entry of foreign banks in India, Rajan added, would be unveiled in the next few weeks.

The banking sector reforms, in particular to those facilitating entry of foreign banks in India in a "big way" is part of the five pillars of reforms, including monetary policy framework, which the RBI is going to implement in the next few years, the RBI Governor said.

"For foreign banks, if you adopt a wholly-owned subsidiaries structure and we are coming up with details on that in the next couple of weeks, we will allow you near national treatment," he said, quickly adding that there would be two conditions.

"One reciprocity -- your country should allow the same to our own banks -- and second you come through one route either you have a branch or you have a subsidiary; don't do both.

That is primarily to simplify our regulatory function, but also to make it clean. But once you have a fully owned subsidiary, we would allow you a lot of freedom," he said.

Acknowledging that price situation was an issue for the economy, Rajan said the ordinary monetary policy would be focused on containing inflation and not directed towards external sectors.

The RBI is scheduled to present the quarterly review of the monetary policy on October 29.

Referring to the US shutdown, Rajan expressed full confidence in the American economy and ruled selling of US treasury bills which India holds to the tune of USD 59.1 billion.

"We (India) do not worry about that issue (US defaulting). We are not selling our US assets. We are holding on to them," he said, adding, I have to say, whatever default, will be a technical default.

We do not expect the US not... from my understanding, because repayments can be prioritised, unless there is a sudden stop and markets stop taking new US debt meant to refinance the old debt there is no chance that the US will default."

Rajan said it would be good for the US to adopt fiscal

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