Foreign banks seek leeway on rural branches

Mumbai: Foreign banks have asked the Reserve Bank of India (RBI) to keep their expansion to tier-II and tier-III towns outside the purview of the World Trade Organisation (WTO) obligations.

Recently in a branch licensing draft circular, the RBI had said a greater weightage should be given to the nature and scope of banking facilities provided by banks to common people, particularly in tier-II and tier-III towns.

In response to this the foreign banks have said that the RBI should not consider foreign banks opening branches in such towns as within the WTO commitment. These semi-urban and rural areas will also help the foreign banks to meet their priority sector obligations, banking sources said.

As per WTO obligations, foreign banks are given only those many branch licences in a financial year, as the concerned bank's parent regulator will allow for an Indian bank in that country.

Foreign banks need to meet the priority sector lending norms in India, which comprises 32 per cent of the net bank credit. Although there are alternatives like contract farming, the banks have said that they find it difficult to meet the priority sector stipulations due to lack of physical footprint.

Most multinational banks are looking at India as a potential growth market. Hence, they want to spread their tentacles by rolling out more branches in newer cities/towns and penetrate further in existing cities/towns.