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Singapore triggers bank bout

New Delhi, Aug. 1: Rich nations want India to open up its banking sector further, citing the example of privileges that have been granted to three Singaporean entities. However, North Block is unwilling to relent on this issue, as this may jeopardise plans to reform domestic banking.

Top officials said India would not fully open up the sector but would allow more branches of foreign banks and offer concessions in the retail segment.

North Block wants consolidation among PSU banks prior to full liberalisation, enabling them to compete with global giants.

Last November, a US delegation led by treasury secretary John Snow had sought more freedom for US banks along with greater FDI in insurance and pension. EU, too, has joined the clamour to open up banking.

The crux of the matter is the Comprehensive Economic Cooperation Agreement (CECA) with Singapore. The pact accords national treatment to three banks — DBS, Overseas Chinese Banking Corp and United Overseas Bank. It implies that the trio will operate as freely as local banks in the country.

The pact, however, was a one-off case.

Currently foreign banks face numerous restrictions: there are curbs on retail banking as well as limits on branches and areas of operations.

India is also unhappy with the lack of reciprocity on the part of the Fed to open up the US market, while India continues to ease entry norms on branches and ATMs.

North Block in this regard will insist on a quid pro quo not only from the US but also from other rich nations.

Indian banks often complain that the operating and ownership regulations prevent expansion abroad.

“There has to be a consolidation of the Indian banking sector which will create a market capable of meeting the eventual challenge of big players coming in. But this has to be politically acceptable ... talks are needed and will happen ... by the end of this year perhaps some movement forward will start,” top finance ministry officials said.

Till then, the government is not keen on the entry of big players on a large scale.

In the meantime, North Block is facilitating dialogues among local banks on synergies. For instance, banks will avoid competition in acquisitions and opening branches abroad.

The actual proposals for mergers will, however, come from the banks themselves, with the government playing the referee.

Recently, a proposal to merge all SBI subsidiaries was shot down as this would create a giant competing with SBI, which was considered “unhealthy”. Instead State Bank and SBI subsidiaries have been asked to explore synergies.

Sources said that there was a suggestion to bring the number of state run banks down to 10 from 27.

The problems of consolidation relate to redundancies of branches and staff. The government considers branch swapping as an option, though unions oppose this.

The government wants to quickly arrive at a consensus on this issue with the unions and the Left as it anticipates the rich nations at the WTO will agree to opening up their agricultural and industrial sector only if India liberalises its finance sector.

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