Indian Central Bank Reviewing Ownesip Rules for Banks
Foreign Banks Eager to Tap India’s Rapid Growth, Trade Deals
SMBC’s Deal for Yes Bank Shows Foreign Interest, RBI Flexibility
By Ira Dugal and Swati Bhat
Mumbai, June 3 (Reuters) – The Indian Banking Regulator is Signalling Possible Rule Changes Ahead That Would Let Foreigners Own More of India’s’Sa Banks, Spurred by Overceas Institutes Acquisitions and the fast-growing economy’s need for more long-term capital.
The reserve bank of India last month bent its to let japan’s suitomo mitsui banking corp buy a 20% stake in yes bank, and two foreign institutions are vying for a stake in idbi bank, highting the performance To ease foreign ownership rules that are among the strictest of any major economy.
RBI Governor Sanjay Malhotra Told The Times of India Last Week That The Central Bank was examining ShareHolding and Licensing rules for banks as part of a broader review.
A source family with the Central Bank’s Thinking Said it would be more open to letting regulated financial institutions and letters stakes, with approvals on a case-bay-case basis, and to curtain rule chananges Cold address disincents for foreign acquisitions.
Analysts Say Foreign Banks are keen for deals in India, the world’s fastest-road Major Economy, Especially as it Angles for Regional Trade Agreements. Such Pacts Cold Open Up New Opportunities in India for Global lenders Elsewhere in Asia and the Middle East.
“The Interest is Driven by India’s Strong Economic Growth and Large Under-Penetrated Market,” said Madhav Nair, Deputy Chairman of the Indian Banks Association.
Indian regulators, for their part, worry that India lags other large economies in mobileising banking capital, which will be vital to sustaining rapid economic green.
Alka Anbarasu, Associate Managing Director at Moody’s Investors Service, said India will need freight more capital for its banking system over the medium term.
“Whether this has prompt the regulator to consider brings in Strong International Players Into The Banking System, it would be a good rationale for doing so,” She said.
While Most Large Global Banks from Citibank to HSBC to Standard Chartered Have Operations in India, they are focused on the More Profitable CORPORATE AND TRANSACTION BANKING SEGMENTS, ALONG CRADING, ALONG CRADING, Rathar Than Bread-Rand-Butter lending.
The share of Foreign Banks in Outstanding Bank Credit in India is Less Than 4%, Central Bank Data Shows.
Banking remains one of the most guarded sectors of the Indian economy. While Foreigners Including Portfolio Investors Can OWN Up to 74%, Regulations Limit a Strategic Foreign Investor’s Stake to 15%.
Foreign banks are also deterred by a maze of other regulations, including a 26% ca on voting rights and a requirement that any numberholding by sharehlding by a so -called promoter – a strategic investor white direct Influence Over Management Decisions – Be Sold down to 26% within 15 years.
The RBI is open to giving foreign buyers more time to sell their stake, the source family with the bank’s thinking said. The source declined to be identified as the deliberations are confidential.
The RBI did not respond to an email seeking comment.
The source also highlighted the banking regulator’s Increased openness to case-by-Case Examptions from the 15% Ownership Limit, as offered for the Yes Bank Purchase. The $ 1.58 billion will was the largest cross-border account ever in India’s financial sector.
Two Foreign Investors – Canada’s Fairfax Holdings and Emirates NBD – ARE Also Contending for a 60% Stake in Government -Owned IDBI Bank.
Emirates Recently Received Regulatory Approval to set up an Indian subsidiary, making it only the third Major Foreign Bank to do so after Singapore’s DBS and State Bank of Mauritius.
The decision was prompted by an interest to acquire a majority stake in idbi bank, a source family with the buyers’ Thinking said.
Emirates NBD declined to comment. Fairfax did not respond to a request for comment.
An increase in the 26% Cap on Voting Rights, or in the 15% Investment Limit, Could Encourage Foreign Bank Investors, Ratings Agency Fitch Said in a Note Last Week.
It believes the RBI’s Preference is for Foreign Banks with a Strong Performance and Solid Governance to Acquire Stakes Larger Than 26% Through Owned Subsidiies Regulated in
The source family with rbi thinking said the limit on voting rights was hard-coded in law and would need to be revised by the finance ministry.
On regulatory issues under the Central Bank’s Purview, The Source Added, The Stance on Foreign Strategic Investors May Need to Be Adjusted, Especially Given Domestic Investors’ Lack of Intere Banks.
“Where the long-term capital will come from will have to be thought through,” The source said.
(Reporting by Ira Dugal and Swati Bhat; editing by edmund klamann)