ICICI chief defends India's banking regulations

ICICI Bank chairman K.V. Kamath has defended rules preventing foreign investors from buying Indian banks, saying international banks had lost ground to domestic rivals not because of regulatory hurdles, but because they had underestimated the local banks.

"Typically, people say India is closed to foreign banks. I do not agree with that at all," Kamath told the Financial Times, London.

"If I look at the countries around the world, India is honestly more open than most," he said.

The leading British financial newspaper said foreign banks, led by Citibank, HSBC and Standard Chartered, had been expanding in India, drawn by its fast-growing middle class and rising corporate sector.

Alongside China, India is regarded as one of the world's most promising markets for international financial services groups, it said.

However, the report said, the foreign banks' hopes of expanding through acquisition were dashed this year when the Reserve Bank of India announced that a foreign bank with an existing presence in the country was prohibited from owning more than five percent of a domestic bank. The rule is set to be reviewed in 2009.

International lenders are allowed to open branches in the country, but they account for a fraction of India's total commercial banking network because of tight government restrictions on branch expansion.

Kamath told the newspaper that foreign lenders faced "a steep slope" as they had "ceded territories to the domestic banks", including ICICI.

A decade ago, when ICICI and some of its peers in private-sector banking were establishing themselves, the foreign banks had the upper hand, he said.

"They blinked. When we set up, they thought ICICI was not serious. They could have easily blocked entry for us. They were strong. They had the products. They had the distribution. They took us a little lightly," he told the daily.

His comments came as ICICI opened its first branch in Hong Kong this week as part of an international growth drive. Kamath said ICICI's Hong Kong office would be used as a hub to serve Taiwan, Japan, South Korea and China.