Performance of Best and Worst Selected Foreign Banks of India: An Analytical Study

The banks which were in existence prior to the initiation of financial sector reforms in the early 1990s are known as old generation banks. The banks which came into being in the post-reforms period are known as new generation banks. Foreign banks can operate in India through their branches. Besides these five major groups, a new institution by the name Regional Rural Banks (RRBs) was created in 1975 in the rural areas of the country specifically to meet the credit needs of these areas. The Public Sector Banks (PSBs) are bigger in terms of the size of their total assets, deposits or credit and wider branch network spread across the rural and urban areas of the country. Thus, in terms of business per branch, they lag behind the private sector banks and the foreign banks considerably. As can be observed, foreign banks in India enjoy the highest spread as compared to private sector banks. In terms of noninterest income also foreign banks stand way ahead. Overall, the net profit of the foreign banks is higher as compared to those of the domestic banks. As bank licenses is concerned, regarding private sector banks: 11 were issued in the first round in 1993, and just two in 2003. From the first lot, only five survived, the rest fell by the wayside or reside in the belly of other. Two decades into banking reforms, the entry of new players has lead to a stiff fight for market share, but the numbers are skewed. In 2010, the RBI released a discussion paper for foreign banks to operate as wholly owned subsidiaries. Key changes envisaged are: (I) It is important that foreign banks are on share balance sheet and off balance sheet credit equivalent higher than 0.25 percent of the industry total. Further Foreign banks are need to convert to a subsidiary structure which emphasized priority sector lending targets, branch expansion opportunity (automatic approval in Tir IV to VI locations). These changes will have significant impact since large global banks operating in India have always sought an even playing field, specifically around branch expansion.