Japan asks India to relax tough banking rules

Formal Japanese request asks greater financial inclusion for Japanese banks.

Addressed to India’s Ministry of Finance and the Reserve Bank of India, the banking regulator, the request seeks a relaxation in the guidelines for Japanese banks operating in India.

According to RBI’s present rules foreign banks would have to first open branches in non-metropolitan areas and then shift to urban centres. RBI also stipulates that 32% foreign banks' lending has to be to priority sectors that include agriculture, small scale industries and export credit.

Japan believes these rules are hampering the profit margins of Japanese banks whose main clientele consists of large corporations. Japan is, therefore, seeking relaxation on this particular issue.

Analysts said the strength of Japanese banks lies in lending to big corporate entities and not to rural enterprises.

Japan’s Big Three Banks all operate in India. Mizuho Corporate Bank Ltd and The Bank of Tokyo-Mitsubishi UFJ Ltd have branches while Sumitomo Mitsui Banking Corporation has a representative office.

Indian sources said the government is set to give a positive reply to this request and an announcement could be made in the coming Union Budget.