New Delhi, July 13: Attempts by India and Pakistan to re-start banking services after a gap of 60 years have run into a wall.
The chill crept in after Islamabad insisted that Habib Bank should be one of the two designated banks from that country which should be allowed to open branches here.
Pakistan also wants National Bank of Pakistan to be allowed to set up branches. The Indian nominees are State Bank of India and Bank of India, both of which operated in Karachi before Partition.
Finance ministry officials have raised objections to the nomination of Habib Bank. The ostensible reason is that the Aga Khan Fund for Economic Development has a stake in that bank just as it does in Development Credit Bank here in India.
The argument advanced for denying Habib a licence to operate in India is that the rules do not allow a foreign investor to hold stakes in two separate banks.
But there is another reason for the finance ministry’s reluctance: intelligence reports indicate that the bank was used as a conduit by Al Rasheed Trust, a charity that acted as a front for al Qaida.
The intelligence services have had their eyes on Habib Bank, which is otherwise fairly well known and respectable.
Earlier this year, national security adviser M.K. Narayanan had in a speech named Habib Bank as one of the conduits used by front organisations to channel funds to terrorist outfits.
“Conduits through which such funds find their way to terrorist organisations include established banking channels such as Habib Bank in Pakistan,” Narayanan had said.
A report by the government’s task force on border management had said Habib Bank was a possible conduit for funnelling cash to Nepal’s Islamic movement.
The New Delhi-based Institute for Conflict Management had come out with a report that quoted the task force as saying: “Financial assistance (to Nepal’s Islamic movement) is also channelised through the Islamic Development Bank (Jeddah), Habib Bank of Pakistan…. Habib Bank, after becoming a partner in Nepal’s Himalayan Bank, has expanded its network in the border areas….”
The finance ministry officials were unwilling to say whether this was the real reason for denying Habib Bank a licence. However, intelligence officials said no foreign bank can open branches in India without a clearance from them.