FDI in Indian banks and foreign banks in India; study of the recent changes and the implications

As per the last FDI policy (Consolidated FDI Policy of Department of Industrial Policy and Promotion, ministry of Commerce & Industry, effective from 05-Apr-2013), FDI is permitted through 4 distinct channels namely maximum of 74% equity in private sector banks, maximum of 20% equity in public sector banks, branches of Foreign banks and wholly owned subsidiaries of foreign banks. The maximum caps seems to be just figures but the figures mentioned assumes importance when we find that the government is battling Current Account Deficit for which any layman would say that Foreign investment into India would help reduce it; Indian banking and banks can be used as soft baits to attract foreign currency. On the other hand, foreign banks have close to the 5% range contribution to the banking sector's most important metrics namely deposits and advances. Thus it is important that FDI in the banking industry and the working of foreign banks becomes very important. This paper tries to correlate the Indian banking industry with the other industries from the investment point of view and also tries to study the futuristic dimensions of the things to come because of the recent changes declared by the banking regulator i.e. Reserve Bank of India.