Determinant Factors of Foreign Banks’ Entry: A Case Study of India
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This study investigates FDI determinants of banking sector in India. History of foreign banks in India has been long since the British colonial rule. However, it is only after the economic reforms in 1991, when the entry of foreign banks has significantly increased. As India achieved a high economic growth with a large number of population, developed countries facing saturated markets back at home has demanded opening up of the Indian banking sector to seek for new market since 1991. As India implemented economic reforms, FDI in the banking sector was also allowed with a gradual approach. However the current government is considering to allow 100% FDI in the banking sector. In this sense, it is time to study FDI determinants in the Indian banking sector, which are closely related to foreign banks’ business strategy in India. For an analysis of FDI determinants of Indian banking sector, we construct panel data from FY1995 to FY2017 due to data availability. Our result supports the hypothesis ‘Follow your client’ that foreign banks enter the India in order to serve their clients.
Abstract
This study investigates FDI determinants of banking sector in India. History of foreign banks in India has been long since the British colonial rule. However, it is only after the economic reforms in 1991, when the entry of foreign banks has significantly increased. As India achieved a high economic growth with a large number of population, developed countries facing saturated markets back at home has demanded opening up of the Indian banking sector to seek for new market since 1991. As India implemented economic reforms, FDI in the banking sector was also allowed with a gradual approach. However the current government is considering to allow 100% FDI in the banking sector. In this sense, it is time to study FDI determinants in the Indian banking sector, which are closely related to foreign banks’ business strategy in India. For an analysis of FDI determinants of Indian banking sector, we construct panel data from FY1995 to FY2017 due to data availability. Our result supports the hypothesis ‘Follow your client’ that foreign banks enter the India in order to serve their clients.
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