India eases grip on overseas banks

India paved the way for foreign banks led by Citigroup and HSBC to open more branches by introducing guidelines that would put them on an almost equal footing with domestic rivals such as State Bank of India.

The overseas banks would be permitted to set up wholly owned subsidiaries with a minimum capital of 5 billion rupees (HK$620 million) and a capital adequacy ratio of 10 per cent, the Reserve Bank of India said.

These locally incorporated units would be permitted to open branches "anywhere in the country at par with Indian banks", the central bank said.

The rules ease the way for firms from Singapore's DBS to London-based Standard Chartered to step up competition with domestic rivals for the country's US$1.2 trillion of deposits. They may also give a boost to India's efforts to extend financial services to the 65 per cent of the population that do not have access to a bank account.

"A large market always piques interest, and more so for under-penetrated markets," said Ismael Pili, the head of Asia bank research at Macquarie in Hong Kong. "India certainly fits that bill with its huge population base."

DBS, Southeast Asia's largest bank, was ready to act as soon as the limits were lifted, said Vijit Yadav, the chief operating officer of the lender's Indian operations.