BoB applies to RBI to open a branch in India

If all goes to plan the Bank of Bhutan (BoB) may become the first Bhutanese bank to have its own branch in India.

The BoB around two months ago applied to the Reserve Bank of India (RBI) to open a branch office in India.

There is hope in Bhutan that the proposal will get through and that BoB may be able to initially start a branch in Delhi.

If the branch comes up it will make it very convenient for Bhutanese travelers, students and business people to transfer money and make payments using BoB.

The advantage is not just in having a physical branch in India but also enabling online payments and transfers between the two countries.

The BoB, if it makes profits in India, will be allowed to transfer its dividends back to Bhutan.

However, the BoB branch will have to behave like any other Indian bank under RBI regulations to collect deposit and also give loans.

It cannot collect deposits in India and then transfer them back to Bhutan to be used. There, however, may be flexibility for BoB customers in Bhutan to access credit facilities in India.

According to RBI regulations, BoB to start with, will have to have a capital of USD 25 mn.

However, the bigger challenge is that within a year of starting operations it will have to ensure that around 40 percent of its lending is to the priority sector lending areas identified by RBI.

There are also many other terms and conditions.

Ever since the 2008 Global Financial Crisis the RBI no longer allows direct contact between a foreign bank and its branch in India, but it has come up with safeguards to ensure that any issues in the branch does not spread to the parent bank of vice versa.

An expert familiar with the multi-national banking field and its regulation said that it will be important for BoB to hire competent people to run the branch as past international bank failures during the 2008 crisis started from foreign branches which did not have adequate control measures and so the contagion spread to the main bank.

A foreign branch once established will be a historic financial step for BoB and allow it to explore the Indian financial market.

It will also face stiff competition from the many players here.

The BoB CEO Dorji Kadin said that BoB had to earlier keep the process on hold as it could not meet the various requirements, but it had restarted the process recently and is negotiating with the RBI.

He said the hope is that since the request is happening through the government the RBI could make some concessions for Bhutan.

He said that a branch in Delhi will give BoB an international presence, but at the same it it would be doing a detailed business study for the commercial side.

According to a source if left to BoB it would prefer a branch in Siliguri given the volume of transactions there but the government had insisted on Delhi.

BoB was established by a Royal Charter in May 1968, and is the oldest and biggest bank in the country. It has 47 branch offices within Bhutan.

The shares are held by Druk Holding & Investments (DHI) and the State Bank of India in the ratio of 80:20 respectively.

BoB provides a wide range of financial products and services, such as deposits, loans, trade finance and money market as well as facilitating financial transactions of customers.

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