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Banking/Financial Services
requirements; and required divestiture to bring ownership stakes in existing wholly-owned subsidiaries
down to no more than 74% by 2009. According to Reserve Bank of India requirements,
foreign banks may not own more than 5% of an Indian private bank without RBI approval.
The result: foreign banks have not opened any wholly-owned subsidiaries, and only 4 U.S. banks
had a combined total of 52 branches across India as of June 2008, primarily in major cities, according
to the U.S. Trade Representative’s 2009 National Trade Estimate. But those figures are
deceptive, given the rise of Internet banking. In 2005, for example, Citigroup—then India’s second
largest foreign bank—had a customer base of 900 large corporations, 22,000 small and midsized
businesses, and 3.5 million retail customers, and was offering credit cards, mortgages and
auto loans, consumer loans, cash management and trade services, fixed income and equities sales
and trading, and corporate finance to businesses, government and other financial institutions.
Bank branch figures also don’t reflect non-bank players, such as Visa, which has offices in
Bangalore, Delhi and Mumbai, and which has issued some 30 million debit cards and 14 million
credit cards through 32 banks and 13 non-bank partners in India. Mastercard also has a strong
presence, through its MasterCard and Maestro card, as well as its popular MoneySend service
that enables customers at 10 participating banks across India to transfer funds to friends and
family via ATMs. All POS transactions are settled through either Visa or Mastercard at present,
with interchange charges totaling some $50 million in 2005-06 and forecast to triple over five
years. The India Banks’ Association (IBA), made up of major domestic and foreign banks nationwide,
is considering establishing its own competing domestic payment settlement entity.
Another large non-bank player, GE-Capital Solutions India, has a $1.2 billion asset base and 21
branches nationwide, and focuses on corporate, commercial, health care and construction
finance, as well as asset management.
Foreign ownership within the Indian banking system is capped by law at 15%, and is currently
only 8%. Ownership of a single bank by a single investor is limited to 10%; aggregate foreign
voting rights in a local bank are limited to 10%. Aggregate foreign direct investment, foreign
institutional investment or portfolio investment by non-resident Indians is 49%, but may be
extended to 74% with approval from the bank’s board.
Foreign banks see enormous potential in the India market and had hoped the RBI would finally
keep its promise to publish in March 2009 a long-awaited “road map” for foreign bank entry into
the Indian market. Instead, the RBI celebrated its 75th anniversary on April 1 with a six-volume
report on India’s financial sector, which it feels is adequately capitalized and provides adequate
technology and services.
Bay Area Connections
At the center of Bay Area-India banking relationships is the NRI market segment, involving
trade finance, remittance, foreign exchange, deposit services, and credit services for Indian
nationals living and working in the region.
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