Foreign Banks Propose Policy Eases to RBI

In a first-of-its-kind formal meeting, 14 foreign bank CEOs met RBI Governor Sanjay Malhotra to provide feedback on operational challenges and suggest measures to ease business in India. The recommendations focus on risk weights, priority sector lending, and on-lending norms.

Key Recommendations:

• Lower Risk Weights for Unrated Multinationals:
  • Currently, unrated corporate loans above ₹200 crore attract a 150% risk weight, higher than rated corporates (30–100%).
  • Foreign banks requested risk weights based on parent company ratings, enabling lending to multinationals at competitive rates in India.
• Priority Sector Lending Adjustments:
  • Foreign banks with 20+ branches must meet the 40% priority sector lending (PSL) target, similar to local banks.
  • Banks with fewer than 20 branches get leeway (up to 32% in export credit). Foreign banks suggested extending this flexibility to more banks and revising the 5% cap on PSL loans via NBFCs, proposing it be doubled.
• On-Lending via NBFCs:
  • Proposal to increase the permissible amount of agricultural loans that can be extended through NBFCs.
• Banking Domain Norms:
  • Foreign banks suggested that the mandatory transition to a bank.in internet domain may be excluded for non-retail facing banks due to their smaller network presence in India.

Foreign Banks

• Foreign banks are banks that are headquartered in a country outside India but have a branch or subsidiary operating in India.
• They conduct banking business in India under Indian laws and RBI regulations but are ultimately owned or controlled by foreign entities.

Regulatory Framework

• Governed under:
  • Banking Regulation Act, 1949
  • Foreign Exchange Management Act (FEMA), 1999
  • RBI’s Master Directions for Foreign Banks