| Commerce minister Kamal Nath, Alan Johnson (right), UK’s secretary of state for trade and industry, and Peter Mandelson, EU commissioner for external trade, in New Delhi on Wednesday. Picture by Ramakant Kushwaha
New Delhi, Sept. 7: European banks want India to bestow on them the privileges given to their Singapore rivals under a comprehensive economic co-operation agreement.
The call for parity came today at the Indo-EU Business Summit, where Standard Chartered group chief executive Mervyn Davies said the two sides should look at signing a comprehensive economic co-operation pact similar to the one India inked with Singapore.
In what could be construed as a complaint, Davies, whose StanChart is already the largest foreign bank in the country, said the pact that allows three Singapore banks to operate like local ones “should not be under-estimated”.
DBS Holdings, Overseas Chinese Banking Corporation and United Overseas Bank of Singapore are free to set up wholly-owned Indian subsidiaries. They will be treated on a par with Indian banks in setting up new branches, areas of business and prudential norms.
Indian banks already in Singapore ' State Bank of India, Bank of India, Indian Bank and Uco Bank ' will get full banking status. This will allow them to go in for electronic funds transfer, clearance and use of the local ATMs.
Existing rules are restrictive for foreign banks seeking to expand. Europe and the US have long been demanding that there should be a level-playing field in this area.
Finance ministry officials concede that this would have to change but insist it will have to wait till they can extract significant trade advantages from the EU and the US, and give local banks enough time to consolidate and stand up to competition from global giants.
Davies argued that the entry of foreign financial players will have an “ABC effect” on India’s financial sector ' it will accelerate growth, bring in best practices and foster competition.
“The Reserve Bank’s new norms have put brakes on “ABC”. There is no level playing-field. Local banks can consolidate by taking over smaller private banks but foreign banks are not allowed to do so,” he said, adding India must remove barriers if it has to realise its full potential.
Barclays Capital vice-chairman David Wright echoed a similar sentiment. He cited how his institution could not hike its near 5 per cent stake in UTI Bank because the existing norms did not allow it. “India’s profile of financial markets is not commensurate with its global outlook. It needs to liberalise. Doing so would help its own firms raise resources at a lower cost,” he added.
However, the EU did not succeed in convincing all. The country head of ABN Amro Bank, Romesh Sobti, said both India and EU need to liberalise their financial sector regulations. He cited several instances of rigid rules in EU that prevented Indian banks from expanding in Europe.
Sobti said European banks could explore opportunities in India’s international financial centres and special economic zones, where foreign ownership rules are less onerous.
“Reforms had important pay-offs in India in the last 25-30 years, starting from bank nationalisation to liberalisation. India could now rank on the top of the chart in the international financial sector as there was no cartel ruling the roost,” the ABN Amro country honcho said.