The Reserve Bank of India (RBI) plans to modify Indian bank ownership regulations because they want to welcome additional foreign investment. The rapid growth of India’s economy together with increasing long-term capital needs has led foreign institutions to show rising interest in acquiring stakes in Indian banks.
The RBI demonstrated flexibility in its rules by allowing Japan’s Sumitomo Mitsui Banking Corp to purchase a 20% stake in Yes Bank. The existing foreign strategic investor policies include a 15% ownership limit and a 26% voting rights restriction which prevent extensive foreign bank participation.
The RBI’s internal discussions indicate that the institution is becoming more open to approving larger ownership stakes for well-regulated financial institutions on an individual basis. The underdeveloped banking sector of India combined with its promising economic prospects attracts foreign banks from Asia and the Middle East according to analysts.
The $1.58 billion Yes Bank acquisition along with Emirates NBD and Fairfax Holdings’ interest in IDBI Bank demonstrates a significant market transformation. Experts believe that bank ownership rule changes will bring essential international capital to India which will support its long-term growth targets.
