New Delhi, July 8: After squabbling over import duties at the World Trade Organization, India and the US have found a common ground in banking.
The two countries have agreed to open their doors further to each others’ banks.
Finance ministry sources said India was willing to give foreign banks, including those from the US and Europe, the right to open up to 20 branches a year compared with 12 branches now.
The Federal Reserve, which is the central bank of the US, is also set to agree to India’s demands to let the State Bank of India set up more branches and ICICI Bank enter the country. The permissions could come as early as next month.
Though North Block was unwilling to link the two issues, the sources said it was a case of quid pro quo.
Even finance minister P. Chidambaram had raised the case for more branches before US officials.
The US had stonewalled on proposals by the State Bank of India (SBI) and the Bank of Baroda (BoB) to expand its network for nearly two years.
It had also delayed for a similar period of time an application by ICICI Bank to set up a branch in the country. The SBI now has just two branches in the US and BoB, one. On the other hand, Citibank is present in 27 cities in India, with plans to open three more branches and install 114 ATMs in the country.
Government officials said the US had earlier denied the SBI and BoB the right to open more branches because the Federal Reserve felt India had not done enough to stop money laundering.
Fears over laundering stemmed from a 2001 case that led to the US imposing a fine of $7.5 million on the SBI for failing to put in place adequate safeguards. However, the Federal Reserve believes the anti-money laundering rules are now as stringent as in the US.
Besides Indian banks have put in place systems to stop the siphoning of funds.
India, however, has imposed a condition for having more branches: The entities should preferably come up in areas having limited banking facilities.
The officials said that in the future financial services would be discussed at the WTO talks.
By that time, India would have offered more concessions similar to the one on branches.
It would then be in a position to leverage the concessions to get relief in other segments.
Both the US and the EU have been lobbying with the Indian government to allow not only more branches but also acquiring stakes in domestic banks.
India has given an informal commitment to allow foreign equity holders have a larger voting stake by 2009. They now have a 10 per cent voting right, regardless of their equity holding.