New Delhi, April 27: India and Pakistan are making a renewed bid to let banks of one country operate in the other’s territory.

Last year, India refused a licence to Habib Bank because of suspected terror links.

Senior finance ministry officials said Pakistan had now nominated United Bank Limited Pakistan and the National Bank of Pakistan to seek licences from the Indian authorities to operate in India.

“The Reserve Bank is looking at the fresh applications. We had earlier agreed that two banks from both sides would be nominated to restart banking services, cut off since the Partition some 60 years ago,” the officials said.

The State Bank of India and the Bank of India have been selected from India’s side to set up branches in Pakistan, the officials said. Both banks had operations in Karachi before the Partition.

Trade between the two neighbours is expanding at a fast pace and expected to touch $2 billion by the end of 2008. Pakistan’s exports to India have grown six-fold in the last five years.

The cross-border trade, however, is not supported by the exchange of banking services.

The renewed bid to start the much needed banking services comes after India’s refusal to grant a licence to Habib Bank. US and Indian intelligence agencies suspected it of being used as a conduit by al Rasheed trust, a charity fund that is allegedly a front for al Qaeda.

Habib Bank is owned by the Aga Khan Fund for Economic Development, which also holds a substantial chunk in India’s Development Credit Bank.

The finance ministry had denied entry to the bank on the grounds of a foreign investor not being allowed to own two banks in India.

The otherwise entirely respectable Habib Bank has been under the scanner of Indian intelligence agencies for a long time.

National security adviser M.K. Narayan, at a conference in Munich last year, had named Habib Bank as one of the conduits used by front organisations to channel funds to terror groups.

“Conduits through which such funds find their way to terrorist organisations include established banking channels such as Habib Bank in Pakistan,” Narayan had said.

A report by the government’s task force on border management had also identified Habib Bank as a possible conduit for the transfer of money to the radical Islamic movement in Nepal.

The officials said once the banking ties started, other Indian banks would also look to set up branches in Pakistan.

Indian banks which were present in Pakistani cities such as Lahore and Karachi before Independence were forced to close shop after the Partition.

The Imperial Bank of India (now the State Bank of India), Canara Bank, Central Bank, Allahabad Bank, Bank of India and United Commercial Bank were among those to have branches in Pakistan.

Recently finance minister P. Chidambaram had asked the top management of the New Delhi-based Oriental Bank of Commerce to resume services in Pakistan. The bank was founded in Lahore in 1943.