This document discusses foreign banks operating in India. It notes that foreign banks are defined as banks headquartered in another country operating in India through branches. There are currently 45 foreign banks operating 286 branches in India. While foreign banks account for under 1% of branches, they control around 7% of banking sector assets and 11% of profits. The document outlines the advantages of foreign banks like increased competition and innovation, and the disadvantages like domestic banks facing greater competition.

2. CONTENT
1. INTRODUCTION
2. BRANCH FORM
3. MAJOR FOREIGN BANKS
4. ROLE OF FOREIGN BANKS
5. RBI POLICY
6. MODE OF ENTRY
7. ADVANTAGES
8. DISADVANTAGES
9. MARKET SHARES
10. CONCLUSION

3. INTRODUCTION
 Foreign banks are the types of international bank.
 Foreign banks are defined as banks from a foreign country
working in India through branches.
 Foreign bank is a bank with a head office outside the
country in which it is located.
 It is obligated to follow the regulations of both the home
and host country. Because the foreign branch bank‘s loan
limits based on the parent‘s bank capital, they can provide
more loans than subsidiary banks.
 E.g. If ICICI bank opens its branch in America. The branch
would be legally obligated to follow both Indian and
American banking regulations.

4. BRANCH FORM
There are two ways of presence of foreign banks in India.
1) Branch form of presence-
 Branch form of presence means that the foreign bank has its physical
branch in India.
 As of November 2018, India has 45 foreign banks with total 286
branches operating in India.
2) Representative Office-
 Representative offices are not actually a branch.
 Currently, 40 foreign banks are operating as representative office in
India. Apart from that, few foreign banks have entered into India via
the NBFC route also.

8. ROLE OF FOREIGN BANKS
 Enhance competition in banking sector
 Technology and skill transfer
 Both foreign and local banks have been investing on financial
innovation.
 Modern banking services are expanded
 Enhance customer satisfaction
 Increase in provision of foreign currency
 Foreign banks participation in Foreign Exchange and money market
contribute for deepening of financial system.

9. RBI POLICY
RBI policy towards presence of foreign banks in India is based upon two
cardinal principles:
1) Reciprocity –
By reciprocity, it means that overseas banks are given near national
treatment in India only if their home country allowed Indian banks to
open branches there without much restrictions.
2) Single mode of presence-
By single mode of presence, it means that RBI allows either of the
branch mode or a wholly owned subsidiary (WOS) mode in India.

10. RBI POLICY
Some other policy guidelines of RBI towards foreign banks are as follows:
 Foreign Banks have to adhere to mandated Capital Adequacy requirements as
per Basel Standard.
 Foreign Banks should have to meet minimum capital requirement of Rs. 5
billion.
 Foreign Banks should need to maintain minimum CRAR at 10%
 Priority sector targets for foreign banks in India is 40%.
Further, Foreign banks have to follow other norms as set by Reserve Bank of
India.

11. MODE OF ENTRY
Foreign banks who wish to open up the branches in India have to
apply to the RBI and satisfying the RBI licencing requirements:
 The bank should also get permission from their home country to
set up branches in India.
 The foreign banks seeking to set up business in India should
have a minimum start-up capital of $25million.
 The other factors to be considered in approving foreign bank
operation includes:
 Financial soundness of the foreign banks

12. Economic and political relations between the home
country of the foreign banks and India.
International ranking of the bank
Home country ranking of the bank
International presence of the bank
Rating given to the bank by international rating
agencies

13. ADVANTAGES
1. Foreign banks are more efficient because of their global presence and
experience.
2. They can bring new innovative product.
3. At times foreign banks supports the government in maintaining
balance of payment and bringing stability in the domestic market.
4. Foreign banks bring more competition which is always good for
growing economy.
5. Better placed to serve multinational companies due to their
geographic presence.
6. Low cost of funds

14. DISADVANTAGES
1. Domestic player may not be able to compete and in the
process might become obsolete.
2. Currency may become volatile if not managed properly.
3. Foreign banks mostly open their branches or subsidiaries
in the financial hubs of the host country, hence they do not
serve majorly in the financial inclusion process of local
country.

15. MARKET SHARE
 Foreign Banks account for less than 1% of the total branch
network in the country. However, they account for
approximately 7% of the total banking sector assets and
around 11% of the profits.
 Most of the foreign banks in India are niche players and their
business is usually focused on trade finance, external
commercial borrowings, wholesale lending, investment banking
and treasury services. Some other banks are confined to private
banking and wealth management.

16. CONCLUSION
 Foreign banks in India always brought an explanation about the
prompt services to customers.
 After the set up of Foreign banks in India, the banking sector in India
also become competitive and accurative.
 Foreign banks contributed to the banking sector and entire economy.
 RBI provide a launch pad to foreign banks for greater business
expansion after 2009.
 India is expected to find a place in the strategy of these banks given
the country‘s growth.