The RBI Governor Raghuram Rajan's announcement to make path for the foreign banks to enter Indian Banking Market and also allowing them to take over Indian Banks gave room to speculations in Indian markets.
But if one comes to the down to earth realty, it will not be an easy transfer of management. Trade unions and middle management always try to be conservative and always oppose to the venturing out of traditional ways. This gives the new management a problem in expanding their market and working in an innovative way. That is what has happened in case of Dhana Laxmi Bank. The new management could not go with the back pulling ways of the union and middle management.
There is again a taxation angle that scares away foreign business houses from venturing in India. If they work as branches it is ok but the moment they make subsidiaries in India it attracts heavy taxation on which RBI does not hold any control.
Indian policy makers and unions may not agree to foreign banks’ entry unless those countries reciprocate by allowing Indian banks also to operate in those countries with the same freedom RBI is giving them which is not thinkable.
Another big hurdle is of the Nationalized Banks taking over of which is not that easy. No Government can take a chance by which opposition will come from other political parties and also bank employees unions.
Hence, the chances are open only to regional banks or banks of some communities like Kotak Mahindra, Indusind, Yes, NBFC Bank and so on if at all it works out by ironing some issues.
Raghuram Rajan’s idea is attractive but ways are also to be invented to make it practical and free from all restrictions and hurdles.