Indian banks appears insulated from financial crisis: IMF

MDT/PTI 26 September 2012

According to International Monetary Fund, countries like Australia, Canada, India, and Malaysia have a relatively low degree of exposure to international banking and also avoided the worst of the effects of the global financial crisis

Washington: India seems insulated from the worst of effects of global financial crisis as it has relatively low degree of exposure to international banking, International Monetary Fund (IMF) has said, reports PTI.

"India and Malaysia appear insulated from foreign banks by almost all indicators when compared with all peer groups, except developing Asia and the economies that make up the BRIC group," said the report released on Tuesday in which IMF asked if some banking systems withstand international contagion because they are less globally integrated.

"Australia, Canada, India, and Malaysia have a relatively low degree of exposure to international banking and also avoided the worst of the effects of the global financial crisis," the report said.

Both India and Malaysia have low foreign bank presence, and banks there have a very low level of foreign assets in their balance sheet, it said.

Malaysia had relatively low reliance on foreign liabilities compared with other peers, whereas in 2007 India was close to the BRIC (Brazil, Russia, India, China) average, the report said.

Observing that the recent episode of global financial turmoil highlights the risk of international contagion and the potential resiliency of less integrated banking systems, the report explore the banking system "openness" and regulatory frameworks of four jurisdictions generally regarded as less globally integrated, all of which fared relatively well in the financial crisis.

It concludes that the funding structure of banks could be more important than lack of foreign bank ownership for financial stability.

According to a table mentioned in the IMF report, India has less than 10% globalisation of its banking system.

India and Malaysia explicitly restrict entry by foreign banks, although both economies have relaxed the policy somewhat, it said.

IMF report said the number of branches a subsidiary can set up had been restricted.

"The maximum foreign ownership stake in a domestic bank is 30%. In India, foreign bank entry has been through branches, and the number of approvals (including expansion of branch networks) is strictly controlled," it said.

"Foreign banks that already have operations in India are not permitted to own more than 5% of shares in domestic banks.

Other foreign banks must seek approval to own more than 10% of shares in an Indian bank.

The authorities are currently considering encouraging the use of subsidiaries. The share of foreign-owned bank assets in total assets is subject to a ceiling," the report said.

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