Reserve Bank of India has decided to carry out an audit in order to measure the transparency in all financial operations of foreign banks in India. The reason behind this is to ensure that these banks do not pose any threat to the Indian banking sector.

These foreign banks are unlikely to be allowed setting up new branches in the country until the assessment process id completed.

There are 32 foreign banks operating in India. India has allowed these banks to open 12 new branches in a year, has been more liberal so far. As a result of this there is a relatively high presence of the banks in the country. An RBI official said, "Our WTO commitment allows us to deny licenses to foreign banks once their share in the total assets of the banking system exceeds 15%. Though the actual share of these banks has far exceeded that (limit) long time back, India never evoked the clause to provide license."

The audit reflects RBI's concerns over potential threat to the Indian financial markets posed by the large number of foreign banks present here.

So far, the central bank and the finance ministry always supported the expansion of foreign banks in India since they felt that this would increase the efficiency of domestic banking sector.

A senior finance ministry official said "The reciprocity issues will be addressed. With our economy expanding, the number of corporates accessing the international markets is also increasing. This requires larger presence of Indian banks overseas. Further licensing and allowing new branches will be based on reciprocity."

In 2005, RBI had laid norms regarding presence of foreign banks in India. These were supposed to be implemented in April 2009 but the process got delayed due to global financial crisis.