New Delhi: India and China have agreed to allow the 106-year-old Bank of China to open a branch in India.

Security clearances for the bank have been given and a notification from the Reserve Bank of India is expected shortly.

The decision to allow Bank of China to start operations here was reached at a meeting between Chinese President Xi Jinping and Prime Minister Narendra Modi on the sidelines of the SCO summit.

Bank of China, which is listed on the Hong Kong and Shanghai stock exchanges and has a market capitalisation of $158.6 billion, will be the second Chinese bank to secure a licence to open a branch in India.

Industrial and Commercial Bank of China (ICBC) already runs one branch in Mumbai.

Bank of China, which received its approval to start banking operations in 1912 from Sun Yat-sen and prides itself on being the oldest Chinese bank, used to issue currency till 1942 when it functioned as the country's central bank.

It will set up a branch in Mumbai as much of China's trade is routed through India's financial capital.

Officials said security clearance for the branch had been given sometime before the Modi-Xi meeting last weekend.

Bank of China had applied for security clearance in July 2016. Initially, the home ministry had supported the move, merely stating that it had no objections to Bank of China's proposal as long as it cleared regulatory requirements. Later, it did a volte-face and opposed clearance last year.

At that time, there were concerns over Bank of China's ownership. Although the listing documents showed the bank to be partly owned by Central Hujin Investment, Hong Kong Exchanges Clearances and China Securities Finance, there were apprehensions that the People's Liberation Army had an indirect stake or control over the bank.

There have also been allegations in the past that the bank was involved in funding Hamas, a terror group which targets Israel.

However, the Bank of China vigorously denied these allegations and asserted that the bank "strictly followed the UN's anti-money laundering and anti-terrorist financing requirements and regulations".

China was believed to be miffed at the turn of events, especially given the fact that it had permitted Indian banks to open seven branches in China since 2006.

The State Bank of India was the first to start operations in China where it has two branches. Bank of India, Bank of Baroda, Canara Bank, ICICI Bank and Axis Bank have one branch each. India had $89.6 billion in trade relations in 2017-18 with China. This is expected to go up to $100 billion by 2020.

"China is important for our imports ... it has signed pacts to set up a mega-investment park in Gujarat and Maharashtra. Talks are afoot for at least two more parks. Obviously, they will ask for a bank branch to support these initiatives," said finance ministry officials.

The Bank of China is also credited with floating the world's largest IPO in June 2006, when it garnered some $36.7 billion to become the most heavily subscribed in the history of the Hong Kong Stock Exchange.