UPSC Prelims 2024 Q49: Indian Economy – Banking and Finance
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Answer: (d) Neither 1 nor 2
Explanation
Foreign Banks in India — RBI Regulations
| Statement | Claim | Verdict | Why |
|---|---|---|---|
| Statement I | Foreign banks in India are required to maintain CRR and SLR as prescribed | FALSE | Foreign banks operating branches in India ARE required to maintain CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio) just like Indian banks. They are subject to the same prudential norms. The statement implies they are exempt - which is incorrect. |
| Statement II | Foreign banks can open branches anywhere in India without RBI approval | FALSE | ALL banks - Indian and foreign - require RBI's prior approval to open branches. Foreign banks face additional scrutiny: RBI grants them limited branch licences and controls their expansion. The statement is incorrect. |
Actual regulations for foreign banks in India:
- Must be incorporated abroad and have a subsidiary or branch licence from RBI
- Required to maintain CRR, SLR, Priority Sector Lending norms (with some adjustments)
- Branch expansion requires RBI permission
- Since 2013: RBI encourages foreign banks to set up Wholly Owned Subsidiaries (WOS) — treated as domestic banks with better branch freedom
- As of 2024: ~44 foreign banks operate in India (HSBC, Citi, Standard Chartered, DBS)
Both statements are FALSE → Answer: Neither 1 nor 2.
Answer: (d) Neither 1 nor 2.
Why each option is right or wrong
- (a) Incorrect. 'Only 1 is correct' would mean foreign banks are exempt from CRR/SLR — they are not; RBI applies CRR/SLR to all banks including foreign branches.
- (b) Incorrect. 'Only 2 is correct' would mean foreign banks can open branches without approval — all branch openings require RBI's prior sanction.
- (c) Incorrect. 'Both correct' would mean both exemptions exist — neither does. Foreign banks in India comply with CRR/SLR and need RBI approval for branches.
- (d) CORRECT. Both statements are false. Foreign banks must maintain CRR/SLR like domestic banks, and must obtain RBI approval for every branch opening.
Key point
Foreign banks in India: must maintain CRR/SLR + need RBI approval for branches. Both statements are false → Neither 1 nor 2.
Remember
Foreign banks in India maintain CRR/SLR and need RBI approval for branches — no special exemptions. Both statements in the question are false.
Common mistakes
- Assuming foreign banks get regulatory exemptions — RBI applies same prudential norms to all licensed entities.
- Not knowing RBI's WOS (Wholly Owned Subsidiary) route for foreign banks since 2013 — WOS gets near-equal treatment to domestic banks.
- Thinking branch expansion is free for foreign banks — even domestic banks need RBI branch licensing approval.
Exam tip
Foreign banks in India = same CRR/SLR as Indian banks + RBI branch approval required. Since 2013, WOS route encouraged for greater access. ~44 foreign banks operate in India. Both exemption statements = FALSE.
Sources
- RBI — Guidelines for Foreign Banks in India
- RBI — WOS Framework for Foreign Banks 2013