VIEW: Fear of foreign banks unjustified

The government may allow public sector enterprises to park their funds in foreign banks, if the US and European Union agree to improved market access in areas such as agriculture. It may also relax curbs on the number of branches foreign banks can set up in India.
After the Harshad Mehta securities scam, the government barred PSUs from parking their funds in foreign banks.The regulatory duo of the Reserve Bank of India (RBI) and Securities and Exchange Board of India has learnt its lessons since then. So has the international banking system, after the collapse of ING Barings.
The Basel I and Basel II conventions lay down prudential guidelines on capital adequacy and credit risks that are appli-cable to banks all around the world. Globalisation has begun to put in place checks and balances, such as Generally Accepted Accounting Principles.
After Enron, it will not be as easy for auditors to pull wool over people's eyes. In this situation, it seems far-fetched to believe that foreign banks will decamp with PSU monies or squander them on the stock exchange.
The RBI can, and does, keep an eagle eye on bank exposures in sectors such as retail and real estate. Its authority will extend to foreign banks registered in India.
The RBI has been circumspect in opening up India's financial sector. The presence of foreign banks has had a positive effect on the services of public sector banks.
PSU banks have moved up the know-how curve and are more customer-friendly. Loss-making enterprises like the Indian Bank have staged a remarkable turnaround. Increase in competition will not do the banking industry any harm.
India is poised to be a high growth economy for years to come. The financial sector needs to expand, and increase the range and upgrade the quality of its services.
Encouragement to foreign banks with an eye on prudential norms will make everyone better off.