RBI May Ease Foreign Ownership Rules amid Growing Global Interest

Motivated by the desire of international institutions to acquire Indian banks and the need for more long-term capital in the rapidly expanding economy, the Indian banking regulator is hinting at potential rule changes that would allow foreigners to possess a larger percentage of India's banks.Two foreign institutions are competing for a stake in IDBI Bank, and the Reserve Bank of India last month loosened its regulations to allow Japan's Sumitomo Mitsui Banking Corp to purchase a 20% stake in Yes Bank. This underscores the pressure to relax the country's one of the strictest foreign ownership laws.

As part of a larger examination, RBI Governor Sanjay Malhotra told the Times of India last week that the central bank was looking into bank licensing and shareholding regulations.

Key Highlights:

•  RBI considers easing foreign ownership rules for Indian banks.
•  Global banks eye India due to growth and untapped market potential.
•   Case-by-case approval likely for regulated foreign financial institutions.

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According to a person with knowledge of the central bank's thinking, it would be more receptive to allowing regulated financial institutions to possess larger stakes, with case-by-case approvals, and to some regulatory modifications that may remove obstacles to overseas acquisitions. From the perspective analysts, international banks are eager to make deals with India, the major country with the highest rate of growth in the world, particularly as it pursues regional trade agreements. These agreements may provide international lenders in Asia and the Middle East with investment opportunities fresh prospects in India. "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.