Policy on entry of foreign banks soon: RBI

The Reserve Bank of India (RBI) will soon come out with new rules for the entry of foreign banks that may even allow them to take over Indian banks.

"We're coming out with details on that in the next couple of weeks... By setting up wholly-owned subsidiaries, foreign banks will get more opportunities to expand in India... That is going to be a big-big opening because one could even contemplate taking over Indian banks, small Indian banks and so on," RBI Governor Raghuram Rajan said at an event of the Institute of International Finance in Washington over the weekend.

Currently, foreign banks in India operate as branches of the foreign parent and face restrictions on the number of branches they can set up in the country.

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

"We will allow you a lot of freedom on branching," he added.

"For foreign banks, if you adopt a wholly-owned subsidiaries structure, we will allow you near national treatment, but with a couple of conditions," Rajan said. "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."

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

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

The central bank is scheduled to present the quarterly review of the monetary policy on October Oct 29.