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India Opens Doors: Foreign Banks Gain Branching Power
2 Jan
Summary
- Foreign banks can now establish 15 branches over four years.
- This marks a significant increase from previous WTO commitments.
- India aims for progressive market opening in its financial sector.
India's financial sector is poised for significant liberalization, with a recent Inter-Departmental Committee recommendation to allow foreign banks to establish more branches. Under a new agreement, foreign banking institutions will be permitted to open up to 15 branches over a four-year timeframe, a notable increase from the 12 branches previously committed under the WTO's General Agreement on Trade in Services.
This decision was considered by the Inter-Departmental Committee (IDC), chaired by Department of Financial Services (DFS) Secretary M Nagaraju. The committee deliberates on proposals from the Reserve Bank of India (RBI) concerning foreign banks seeking to operate in India, consulting with member ministries for security, political, and economic input. The recent report, "Trend and Progress of Banking in India 2024-25," indicated a gradual contraction in foreign bank branches in recent years.
The enhanced branch licensing framework, coupled with higher Foreign Direct Investment (FDI) limits in banking and insurance, reflects India's calibrated yet forward-looking strategy for financial sector liberalization. This expansion in branch limits underscores India's commitment to progressive market opening, aligning with its broader strategic objectives and signalling a welcoming environment for international financial institutions.
