India's central bank said it will treat foreign banks operating in the country on nearly equal terms with local lenders if they move to a wholly owned subsidiary structure, as it seeks to bolster its regulatory powers in the wake of the global financial crisis.
The rules issued by the Reserve Bank of India (RBI) late on Wednesday were generally in line with expectations and could expand opportunities for international banks in the country, since they would have greater freedom to open branches and would be able to participate more fully in the development of the Indian financial sector.
However they could also face a greater regulatory burden. Currently foreign banks in India with substantial networks - a category including Citigroup, HSBC, and Standard Chartered - operate as branches, not subsidiaries, a distinction which crucially affects their regulatory framework.
Foreign-owned banks operating as subsidiaries would be required to earmark 40 percent of their lending to the "priority sector," which includes underserved parts of the economy and agriculture, the same obligation as for domestic banks and in line with a rule being phased in for existing foreign banks with 20 or more branches.
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