**Executive Summary**
This document pertains to Unstarred Question No. 325 in Lok Sabha regarding the participation of foreign banks in India's financial system. It outlines the existing policy measures and regulatory framework governing the entry and operation of foreign banks. The document was answered on Monday, February 02, 2026.
**Key Points / Main Content**
* **Granting Banking Licenses:**
* Under the Banking Regulation Act, 1949, the Reserve Bank of India (RBI) is responsible for granting or refusing banking licenses, including those for foreign banks.
* **Application Review Process:**
* Applications deemed suitable by RBI are forwarded to the Government of India.
* The Inter-Departmental Committee (IDC) reviews the applications.
* The IDC comprises members from the Ministry of Home Affairs (MHA), Ministry of External Affairs (MEA), and the Department of Commerce (DoC), with the Department of Financial Services (Ministry of Finance) acting as the nodal department.
* Following clearances from member ministries/departments, the IDC recommends the proposal to RBI for further action.
* **Regulation and Supervision:**
* All banks, including foreign banks, are regulated and supervised by the RBI under the Banking Regulation Act, 1949.
* Foreign banks must adhere to the same prudential norms, operational guidelines, and corporate governance standards as domestic banks, as per RBI Guidelines.
* **Priority Sector Lending (PSL):**
* The RBI has prescribed targets and sub-targets for priority sector lending (PSL) by foreign banks, as outlined in its Master Directions.
**Impact Analysis**
**Impact**
* The RBI is responsible for the overall regulatory framework.
**Action Required**
* RBI is responsible for granting or refusing banking licenses,
* RBI is responsible for supervising, and regulating all banks.
* RBI should adhere to all existing regulations.
**Impact**
* Ministries such as the Ministry of Home Affairs (MHA), Ministry of External Affairs (MEA), and the Department of Commerce (DoC) review applications and make recommendations.
**Action Required**
* They need to give the necessary clearances.
**Impact**
* Domestic banks will be compared to foreign banks and may need to follow the changes/improvements made by foreign banks.
**Action Required**
* Follow and adhere to the same prudential norms, operational guidelines, and corporate governance standards as domestic banks, as per RBI Guidelines.
**Impact**
* Foreign banks seeking to operate in India must comply with regulations and requirements.
**Action Required**
* Adhere to the same prudential norms, operational guidelines, and corporate governance standards as domestic banks, as per RBI Guidelines.
* Adhere to all existing regulations.
Key Entities Referenced
Reserve Bank of India (RBI): The regulator responsible for licensing, supervising, and regulating banks, including foreign banks, as mentioned in the document.
Banking Regulation Act, 1949: The act under which the grant or refusal of a banking license, including to foreign banks, is determined.
Inter-Departmental Committee (IDC): A committee involved in examining applications for foreign bank licenses after initial review by the RBI, with members from various ministries.
Ministry of Finance: The nodal department responsible for the overall process of foreign bank participation.
Priority Sector Lending (PSL): Targets and sub-targets prescribed by RBI for foreign banks
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF FINANCIAL SERVICES
LOK SABHA
UNSTARRED QUESTION NO- 325
ANSWERED ON MONDAY, FEBRUARY 02, 2026/MAGHA 13, 1947 (SAKA)
Participation of Foreign Banks
325. DR. AMAR SINGH:
Will the Minister of FINANCE be pleased to state:-
(a) whether the Government has initiated policy measures to allow greater participation of foreign
banks in the country's financial system through a committee process involving Finance, Home,
External Affairs and Commerce Ministries, signalling a calibrated embrace of global capital amid
restored financial stability;
(b) if so, the details of the Government’s assessment of how such foreign bank entry is likely to
impact credit availability, competitiveness with domestic banks, regulatory oversight, risks of
financial contagion and alignment with India’s financial inclusion and innovation goals; and
(c) the comprehensive policy framework proposed by the Government to manage foreign bank
participation while safeguarding the country's sovereignty in financial decision-making, ensuring
equitable access to credit for priority sectors and reconciling external engagement with national
self-reliance narratives?
ANSWER
THE MINISTER OF STATE IN THE MINISTRY OF FINANCE
(SHRI PANKAJ CHAUDHARY)
(a) to (c): Under the Banking Regulation Act, 1949, grant or refusal of a license for banking
business to a bank, including a foreign bank, is a function assigned to the Reserve Bank of India
(RBI). As per the extant practice, applications that are found suitable from banking angle by RBI
are sent to the Government where the same is examined through the Inter-Departmental
Committee (IDC) of the Government of India. IDC is an inter-ministerial committee with
members primarily from Ministry of Home Affairs (MHA), Ministry of External Affairs (MEA)
and Department of Commerce (DoC) with Department of Financial Services, Ministry of Finance
being the nodal department. Once the necessary clearances are given by the member
ministries/department, the matter is then recommended by the IDC to RBI after which RBI
takes further necessary action on the proposal.
As per Banking Regulation Act, 1949, all banks, including foreign banks are regulated and
supervised by RBI. Further, in terms of the extant RBI Guidelines, foreign banks, inter-alia, are
also required to adhere to same prudential norms, operational guidelines and corporate
governance as applicable to domestic banks.
With regard to the priority sector lending (PSL) by foreign banks, RBI, vide its Master Directions,
has prescribed targets and sub-targets for foreign banks too.
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