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Indian Bank Employees To Protest Against New RBI Policy For Foreign Banks - Report

Vanessa Doctor, Asia Correspondent, 14 November 2013

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Bank employees in India are planning to march to the Reserve Bank of India on 11 December 2013 in protest against a new bank licensing policy that gives foreign banks easier access into the country, according to local media reports.

Bank employees in India are planning to march to the [tag|Reserve Bank of India|]Reserve Bank of India[/tag] on 11 December 2013 in protest against a new bank licensing policy that gives foreign banks easier access into the country, according to local media reports.

The dharna opposes the implementation of a new RBI rule that enables the free entry of foreign banks, while also allowing the freedom to take over or merge with local private banks. The Bank of Employees Federation of India and the All India Bank Employees Association are among those holding the protest, which reports say could see as many as 30,000 bank staff participating in.

"Banks can play a vital role at time of slowdown, provided they are regulated with proper guidelines. The public sector banks have to be strengthened and regulated. This is not an appropriate time to allow new banks," C.H. Venkatachalam, general secretary of the AIBEA, was quoted by The Hindu Business Line as saying.

The RBI relaxed rules for foreign banks wanting to expand their business in the country in early November 2013 in a bid to boost capital inflows and competition. The central bank has said it will put foreign financial institutions on a level with local lenders if they adopt a wholly-owned subsidiary structure. However, certain restrictions on foreign banks will remain.

The RBI will cap expansion of foreign banks if their share of the market exceeds a “critical size”. According to the wording of a statement the RBI issued earlier this month, it said: “To prevent domination by foreign banks, restrictions would be placed on further entry of new WOSs of foreign banks/ capital infusion, when the capital and reserves of the WOSs and foreign bank branches in India exceed 20 per cent of the capital and reserves of the banking system."

Non-India banks operating in the country include UK-listed firms such as HSBC and Standard Chartered; they both operate large networks and are run as branches, not subsidiaries.

A bank operating as a wholly owned subsidiary has a “priority lending requirement” of 40 per cent; the RBI has said it will have an “adequate transition” period for existing foreign banks switching to the WOS structure.

State banks in India account for about two-thirds of the sector’s assets (as of end-March 2012), according to Reuters; foreign banks accounted for a mere 4.3 per cent of deposits, suggesting that there is considerable upside potential even with continued restrictions in place.

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