New Delhi, Dec. 3: The government has said it would ease the entry rules for US banks, but not before the US opens up its markets to Indian banks.
The issue has been discussed previously with the US, and top North Block officials expect it to be settled in favour of India.
When Indian officials meet US assistant secretary for international trade Franklin Lavin, it will be argued that India has given more freedom to foreign banks than warranted by India’s obligations under trade treaties such as Gatt.
The US has not sanctioned proposals on expansion by the SBI and Bank of Baroda and one of ICICI Bank for a branch. The SBI has just two branches in the US, and BoB only one. However, Citibank has about 16 branches in 13 cities of India, a network of 114 ATMs, with plans to open 10 more branches in the country.
Officials said the US refused permission to SBI and BoB to open branches on the grounds that the banks do not have adequate mechanisms to check money laundering. The misgivings were from a case in 2001, when the US Fed fined SBI $7.5 million for its failure to have checks against laundering.
However, the US admits that Indian laws are now on a par with the US and the prudential norms of Indian banks have stalled laundering.
“Basically, it’s a question of quid pro quo and it is in US interest to open its markets to us. US banks want to expand faster into the Indian market organically and they need branch licences more than we do,” officials said.
The government will be insisting on reciprocity from not only the US but other major markets.
Indian banks say they face difficulties in expanding overseas as the operating and ownership regulations they confront abroad are not the same as the norms in India.
A crucial issue is India’s unwritten commitment on increasing the voting stake of foreigners in banks beyond 10 per cent before 2009. The quicker India moves in this direction, the greater is the likelihood of the US and the EU being amenable to the relatively smaller issue of bank branches.
However, the US not only wants a level-playing field and relaxation of FDI caps in banking, it also wants entry of US companies in the pension sector and investment cap relaxations in other sectors.
“One of their major demands is likely to be conceded this very month. It is the permission to invest up to 49 per cent in Indian stock markets,” the officials said.
Another major demand of the US and EU is to extend the facilities enjoyed by Singapore banks to their banks as well.
Treated on par with Indian banks, Singapore banks have greater access to the Indian financial sector, including retail banking.
“Virtually every nation wants us to extend national treatment to their banks. We have not agreed to anyone’s request but to Singapore’s whose two banks have been accorded national treatment,” said an official. National treatment ‘implies’ level-playing field for foreign banks.
Foreign banks face many restrictions in India — there are bars on entry in retail banking on a large scale, branch expansion and areas of operations.
However, the government is unwilling to go the whole hog in removing the restrictions as it fears derailing reforms in local banks.
Top North Block officials said India would not totally open up its banking sector but allow more foreign bank branches as well as concessions in retail banking.
North Block wants PSU banks to consolidate into mega-corporations capable of meeting the challenge from global banks before opening up the market.