FOREIGN BANKS

IN INDIA
ASHWINI JERRY
PGDM15

INTRODUCTION

Banks constitute the major component of

financial system in most developing and
emerging economies.

Broadly classified into scheduled banks and

non-scheduled banks. The scheduled banks
are those which are included under the 2nd
Schedule of the Reserve Bank of India Act,
1934.

Foreign bank is a type of bank that is

obligated to follow the regulations of both
the home and host countries. Because the
foreign branches of those banks loan limits
are based on the parent banks capital, foreign
banks can provide more loans than
subsidiary banks.

ABOUT FOREIGN BANKS OF INDIA

Foreign Banks operating in India are banks of countries

having their branches in India. At present, there are about 50
foreign banks having a total of about 300 branches in most
of big cities of the country.

Some economist are of the view that foreign banks should

not be allowed to operate in the country. But permission to
such banks to operate in the country is unavoidable on the
basis of reciprocity. This is certainly the view of the Reserve
Bank of India and it is justified by the success of Indian
banks operating in foreign countries.

MODE OF ENTRY

Foreign banks who wish to open up branches in India

have to apply to the RBI and satisfy the RBI licensing
requirements.

The banks should also get permission from their

home country to set up branches in India.

The foreign banks seeking to set up business in India

should have a minimum start-up capital of $25
million.

CONTD..
Other factors to be considered in approving foreign bank
operation includes:

Financial soundness of the foreign banks

Economic and political relations between the home

country of the foreign banks and India.

International ranking of the bank.

Home country ranking of the bank.

International presence of the bank.

Rating given to the bank by international rating agencies

Role of Foreign Banks in India

Enhance competition in the banking sector

Technology and skill transfer

Both foreign and Local banks has been investing on

financial innovation.

Modern banking services expanded

Enhanced customer satisfaction

Enhanced Provision of foreign currency to

corporations

Foreign banks participation in foreign exchange and

money market contribute for deepening of financial
system

Reasons for Foreign Bank Expansion

India's GDP has been growing at a robust rate and it is

expected to maintain the pace over the next few years,
throwing up opportunities for the banking sector to profit
from.

The credit of banks has risen and the growth momentum

is expected to continue over the next four to five years.

RBI is following a liberal branch licensing policy for

those foreign banks who want to go to the unbanked
pockets.

RBI has also been further liberalizing its policy on

foreign bank entry and operation

FUNCTIONS OF FOREIGN BANK

FINANCING FOREIGN TRADE

They primarily finance Indias foreign trade. They under take twoway operations.

Financing of exports and imports of India; and

Financing of movement of goods from and to Indian ports/to or

from the distributing or collecting centers in the interiors parts of
the country. In this context, they discount or purchase foreign bills

BANKING BUSINESS :

The exchange bank conducts all types of banking business. They

accept Deposit from the public, grant loans, discount trade bills and
provide remittance facilities. And thus compete with Indian banks.

Contd..

FINANCING INLAND TRADE:

They also finance trade in many up country centers, as they

opened a number of branches in the main ports and trading
centers of the country.

AGENCIES SERVICES

Like other commercial banks, foreign exchange banks render

several agencies services to their customers.

RBI GUIDELINES FOR THE NEW WOS POLICY

Foreign banks opting for branch presence must convert into WOS
when it becomes systematically important.

Foreign banks creating subsidiaries to be permitted to acquire local

banks.

Priority sector lending on par with Indian banks.

2/3rd of directors must be non-executive and at least 1/3 rd of them

should be independent of the management of the subsidiary in India.

Need to have at least 25% of their branches in rural areas.

Under the WOS model, the foreign banks will be required to set up a
subsidiary under the companies act and operate as an Indian entity.

Foreign banks operating in India before August 2010 will have

option of continuing their banking in the country as branches.

Foreign bank subsidiary are allowed to list on local stock exchanges.

Cross segmental mix of branch network

FINANCIAL PERFORMANCE
OF FOREIGN BANKS IN INDIA

TREND PERCENTAGE ON BUSINESS PER EMPLOYEE

AND PROFIT PER EMPLOYEE OF FOREIGN BANKS

The table shows that as the foreign banks establish their presence
in India through branch expansion and wholly owned
subsidiaries, the business earned on per employee basis by the
foreign banks has a steady increasing trend year on year with
110% in 2009-10, 121% in 2010-11, 152% in 2011-12 and 169%
in 2012-13.

Then the profits earned show an increasing trend with 108% in

2010-11, 143% in 2011-12 and 180% in 2012-13.

 It is inferred that the India's foreign banks earn a considerable rate

of business and profits out their total employees working in the
organization.

TREND PERCENTAGE ON DEPOSITS, INVESTMENTS

AND ADVANCES OF INDIA'S FOREIGN BANKS

The table shows that the deposits, investments and advances of India's
foreign banks are at an increasing trend year on year irrespective with
the number of branches and subsidiary companies held by the banks.

It is found that the India's foreign banks have shown a considerable

amount of optimum increasing trend in deposit, investments and
advances ensuring large amount of customer base, ploughing profits to
profitable investments balancing the standard capital adequacy ratio
norms as prescribed by RBI and providing necessary advances to high
priority sectors, that stands at 135%, 175% and 159% in the last fiscal
period.

TREND PERCENTAGE OF RETURN ON EQUITY AND

RETURN ON ASSETS OF INDIA'S FOREIGN BANKS

The table below shows the trend percentage of return on equity and
return on assets of India's foreign banks have balanced to maintain a
steady increase from the year 2009-10 onwards.

The return on assets and return on equity is found to be

moderately increasing from the base year 2008-09 onwards,
that stands at 97% and 84% in the last fiscal period.

CONCLUSION

The history of Indian banking system is associated with foreign

banks. The post 1990 economic liberalization period in India
resulted in increasing number of foreign bank operations

Foreign banks contributed to the banking sector and entire

economy. The growth in Indian economy coupled with
emerging educated middle class showed that the banking sector
could have further potential for foreign banks in India, though
their advantage foreign bank has been criticized for their profit
supremacy over social banking.

The effectiveness of foreign banks operating in India has

covered a large customer base, due to their fast, efficient
working style and better customer service.

REFERENCE

www.rbi.org.in

www.vitt.in/banks/foreign.html

IRJBM- ISSN 2322-08.pdf

www.iimb.ernet.in/research/sites/default/files/WP%20No.%
20451.pdf

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