Chinese Banks in India

Entry of Chinese Banks in India and what will be their impact on Indian banking system and Indian economy, this is the talk of town.  The Reserve Bank of India (RBI), on July 4, issued a license to the Bank of China (BoC), one of the four biggest state-owned commercial lenders in China, to operate in India.

The RBI approval follows Prime Minister Narendra Modi’s commitment that India would accelerate procedures to allow the BoC to set up branches in India. Security clearances for the bank were given earlier.

Prime Minister Narendra Modi had made a commitment to Chinese President Xi Jinping to allow Bank of China to set up branches in India when they met on the sidelines of the SCO summit in Chinese city of Qingdao last month.

That meeting reportedly covered key aspects of bilateral engagement reflecting a resolve by the two countries to reset relations and boost trust which has taken a beating owing to several sticky issues including last year’s Doklam standoff.

This year could see significant increase in opening of foreign bank branches in India after last year’s sharp reduction in branches. The number of foreign bank branches in India fell to 288 in 2016-17 from 317 in 2015-16, according to RBI data.

Among the Chinese lenders, the Industrial and Commercial Bank of China (ICBC) has applied for opening its second branch in New Delhi while Bank of China has applied for approval for its first branch in the country.

The 106-year old bank has market capitalization of $158.6 billion and is one of the four major state-owned banks in China. Banks from Netherlands, Iran, South Korea and Malaysia had sought permissions from the RBI to open a branch in India as well.

Chinese banks have been expanding their business dealings with Indian companies. Reliance Power and Reliance Communication were one of the first companies to go for Chinese funding. Chinese banks are keen to expand their foothold in banking in India.

India and China have been focusing on expanding their economic ties not withstanding differences on several sticky issues including on the boundary dispute.

Several foreign banks, along with the Bank of China, have sought RBI’s permission to set up operations in India. Industrial & Commercial Bank of China Ltd (ICBC) already has operations in India along with 44 other foreign banks, according to the RBI data.

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