India Set To Open Up Banking Sector To New Entrants

Vanessa Doctor

12 August 2010

The opportunities are high for new banks to enter the fast growing Indian market, as the country's central bank considers amending licence issuance guidelines.

In a discussion paper released 11 August, the Reserve Bank of India said it is contemplating whether to allow industrial groups to operate their own banks and permit non-banking financial firms to obtain full licences. New entrants will face tough competition from the 200 year old State of Bank of India, which presently holds one fifth of the country's banking assets, and private sector bank ICICI Bank, but the prospects will be good.

Included in the amendments are the possible capping of foreign investment in new banks at 50 per cent and the locking of these holdings for at least 10 years from the start of operations.

India has been getting a lot of attention from investors worldwide after several studies showed it is home to the highest number of wealthy individuals and families in Asia, most of whom have minimal banking exposure. The entry of new banks could also spur competition within the Indian banking sector, which has only seen 12 licences given out since the 1990s.

The minimum capital requirement for new local banks will be 3 billion rupees ($64 million), the regulator said. Final details have yet to be ironed out after the central bank receives stakeholders' feedback on 30 September.