India considers easing rules for bank ownership

The Indian banking regulator is signalling possible rule changes ahead that would let foreigners own more of India’s banks, spurred by overseas institutions’ eagerness for acquisitions and the fast-growing economy’s need for more long-term capital.

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The Reserve Bank of India last month bent its rules to let Japan’s Sumitomo Mitsui Banking Corp buy a 20 per cent stake in Yes Bank, and two foreign institutions are vying for a stake in IDBI Bank, highlighting the pressure to ease foreign ownership rules that are among the strictest of any major economy.

RBI Governor Sanjay Malhotra told the Times of India last week that the central bank was examining shareholding and licensing rules for banks as part of a broader review.

A source familiar with the central bank’s thinking said it would be more open to letting regulated financial institutions own bigger stakes, with approvals on a case-by-case basis, and to certain rule changes that could address disincentives for foreign acquisitions.

Analysts say foreign banks are keen for deals in India, the world’s fastest-growing major economy, especially as it angles for regional trade agreements. Such pacts could open up new opportunities in India for global lenders elsewhere in Asia and the Middle East.

"The interest is driven by India’s strong economic growth and large under-penetrated market,” said Madhav Nair, deputy chairman of the Indian Banks Association.