Foreign banks operating in India are banks of other countries having their branches in India. At present there are about sixteen such banks having a total of about 180 branches in most of the big cities of the country. These foreign have a flourishing business and earn large profits. Indian banks also have their branches in other countries, and they, too, are doing well.
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Some economist is of the view that foreign banks should not be allowed to operate in the country. But permission to such banks to operate in the country is unavoidable on the basis of reciprocity. This is certainly the view of the reserve bank of India, and it is justified by the success of Indian banks operating in foreign countries.
Indian banks have been rapidly expanding their overseas operations. Between 1975 and 1978, the number of offices of Indian banks in foreign countries had increased by 48, from 77 to 125. This is a contrast with the stagnant of business of Indian banks has been phenomenal as compared to that of the branches of their foreign counterparts in India. Deposits and advances of Indian banks abroad have increased by 14% and 18% respectively, where as the corresponding figures of foreign banks in India are 28% and 30% respectively. In terms of remittances of the present banks also, Indian banks are ahead. In 1976, they remitted Rs. 9 cores to India, where their counterparts remitted Rs. 7 cores only.
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Indian banks abroad are involved in many new banking activities. State Bank of India and Bank of Baroda, the two leaders in the sphere, are raising foreign currency funds, for both private and public sector concerns. In addition, these banks are funding many joint ventures in south East Asia. For instance, S.B.I. is funding joint ventures in Singapore, Indonesia and Malaysia. The bank has arranged finances to the tune of $750 million dollars.
We can see clearly that Indian banks are indeed generating a lot of business overseas. At present they are operating in as many as 26 countries of which only eight countries have their own bank branches in India. Thus, the question of reciprocity does indeed have relevance, because, if we want to seek profitable opportunities overseas, we must be prepared to open our own gates also.
In short the operation of foreign banks in India is fully justified. It is in our national interest.