Foreign banks not betting on level India field

By Rina Chandran

MUMBAI (Reuters) - Foreign banks keen to benefit from India's boom are ramping up operations as fast as rules allow, but are not betting that a planned review of their presence in 2009 will quickly level the playing field with local rivals.

India's central bank curbs the number of branches foreign lenders can open and limits their holdings in domestic players to just 5 percent. Its April 2009 review will consider removing restrictions to bring foreign banks on par with domestic banks.

Bankers at foreign institutions are keeping their expectations in check.

"I don't think anyone has a clue, quite honestly," Naina Lal Kidwai, group general manager and country head of HSBC India (HSBA.L: Quote, Profile, Research, Stock Buzz), told the Reuters India Investment Summit.

"The commitment to the policy depends on the political and economic situation. The old mindset can still shape key aspects," she said, adding bilateral agreements or the need for vast amounts of capital could be a bigger trigger for reforms.

A general election scheduled for 2009 adds to the uncertainty, as a new government would not be required to follow through on the review.

HSBC, the No. 3 foreign bank behind Standard Chartered (STAN.L: Quote, Profile, Research, Stock Buzz) and Citigroup (C.N: Quote, Profile, Research, Stock Buzz), operates 47 branches in India.

All told, the 29 foreign banks in India operate 273 branches and 871 off-site automatic teller machines.

That is dwarfed by the 10,000 branches top lender State Bank of India (SBI.BO: Quote, Profile, Research, Stock Buzz) aims to have in place by March 2008 and the 950 branches No. 2 lender ICICI Bank (ICBK.BO: Quote, Profile, Research, Stock Buzz) (IBN.N: Quote, Profile, Research, Stock Buzz) already has.

"Clearly, 47 branches is a sub-optimum branch network, and we are very limited," HSBC's Kidwai said.

"It's an issue, but I've stopped using that as an excuse."

FAIR SHARE

India's financial services sector is estimated to be growing three times faster than the economy, which has expanded at an average rate of 8.6 percent in the last four fiscal years.

Under its World Trade Organization commitments, India is obliged to permit 12 branch licenses to foreign banks each year. The central bank pointed out last month it had been doing more than that, authorizing 75 branches between 2003 and October 2007.  Continued...