A Study of Business Practices Models of Foreign Banks Operating in India Post RBI Road Map 2005 with Special Reference to India's Foreign Trade.

Abstract

After 2005 RBI’s Road Map for foreign banks, which allowed fair competition and geographical expansion, to some extent, foreign banks became aware of new strategic possibilities available in India. Now, foreign banks were free to enter new markets either by acquiring existing competitor bank franchises or by opening one of their own set up as the Wholly-Owned Subsidiary (WOS) model proposed by RBI. This research paper attempts to study the correlation related to India’s foreign trade and business practices models of foreign banks operating in India Post RBI Road Map 2005 through the use of publicly available information. The foreign banks’ sample consists of consistently operating 24 foreign banks out of the universe consisting of 43 foreign banks and 43 representative offices of foreign banks in India. This research study covers period pertaining to two financial years prior to RBI Road Map 2005 as the previous reference for financial performance and eight financial years after the RBI Road Map 2005, thus the observation period as ten years related to a time span of financial year2003-04 to 2012-13. The business practices model determination procedure included the observation of the foreign banks’ position subject to their consistent financial activities and financing India’s foreign trade between 2003-04 and 2012-13, a recording of that position by the use of 23 variables pertaining to foreign banks working, plus 5 variables pertaining to India’s foreign trade, total 28 identified variables, and assigning each observed foreign banks its position (a point) in a confined multidimensional data set. Using these aforesaid 28 variables and by employing factor analysis technique, eight factors were generated. Based on aforesaid eight factors and by employing a cluster analysis technique, the data set was used to group foreign banks according to the shortest squared Euclidian distances measured between the foreign banks. The performed clustering analysis findings suggested three clusters solution, thus identifying three distinctive models. In summary, the performed study proved to be technically capable of identifying business practices models for the sampled foreign banks and provided analytical insight in the constructed models and foreign banks within the observation period.