India-Pakistan banking diplomacy plans stuck

Banks haven’t applied to set up branches despite the central banks allowing them to, say officials on the sidelines of India Show by Ficci in Lahore


From the Indian side, Punjab National Bank (PNB) had shown interest in setting up offices in Pakistan, an official said. Photo; Pradeep Gaur/Mint
From the Indian side, Punjab National Bank (PNB) had shown interest in setting up offices in Pakistan, an official said. Photo; Pradeep Gaur/Mint

Lahore: Almost two years after India and Pakistan agreed to allow some of their banks to open branches in the other country to boost trade that has been the driving force behind the recent peace talks between the South Asian rivals, financial institutions from neither side have formally submitted any applications, officials from both nations say.

Though three banks from Pakistan expressed interest in setting up branches in India and one or two financial institutions from India had shown keenness after both countries agreed in August 2012 to issue full banking licences to two banks from each country, there has been no forward movement, an Indian commerce ministry official told reporters on the sidelines of the second India Show being held in the eastern Pakistani city of Lahore.

The 14-16 February event organized by lobby group Federation of Indian Chambers of Commerce and Industry (Ficci) and the commerce ministry attracted hundreds of Pakistani visitors and entrepreneurs to the 120 stalls that showcased Indian products ranging from textiles and jewellery to IT and medicare services.

“Central banks of both the sides have in-principally agreed to permit banks to set up branches. Three Pakistan banks including Muslim Commercial Bank have expressed keenness, but India has not received any application till now,” the Indian official said, requesting anonymity.

From the Indian side, Punjab National Bank (PNB) had shown interest in setting up offices in Pakistan, the official cited above said, adding that financial institutions from both sides were expected to choose metropolitan centres to set up operations.

Pakistani commerce secretary Qasim M. Niaz confirmed three Pakistani banks, including the Muslim Commercial Bank, were interested in opening branches in India.

Several Indian banks were operating out of Pakistan before the partition of the subcontinent at the end of British colonial rule in 1947.

PNB, founded in 1895 in Lahore, had its registered office in the city. Just months before partition, the bank shifted its headquarters to New Delhi, according to a post on the bank’s website, citing its history.

“The central banks of the two countries need to process the issue; that is where it is stuck,” said Nisha Taneja, a professor of economics with the New Delhi-based ICRIER think tank.

“Banks opening branches in the other country will definitely facilitate trade, but it is not that trade cannot happen without it,” she said. “If you have a bank with a presence in both countries, trade can work.”

Referring to the peace dialogue between India and Pakistan that has been stalled due to tensions between the two sides, Taneja said, “When the talks re-open, the first thing that is expected to happen is Pakistan giving India non-discriminatory market access. Then only other things (including banking licences) can move forward.”

India and Pakistan resumed peace talks in February 2011 after a break caused by the 2008 Mumbai terrorist attacks that India blames on the Pakistan-based militant group, Lashkar-e-Taiba.

Trade has been the main driver of the resumed round of talks, with India in April 2012 taking the in-principle decision to allow Pakistani companies to invest in India and Pakistan increasing the number of items that can be traded with India.

Both sides also opened a second check-post through which trade can take place at the Wagah-Attari border in Punjab.

Bilateral trade, which was $250 million in 2003, rose to $2.6 billion in 2013. Indian commerce ministry official Arvind Mehta on Friday confirmed that Pakistan’s exports to India had doubled in the past three years from $250 million to $530 million.

India-Pakistan ties hit a further roadblock last year when two Indian soldiers were beheaded in January along the line of control (LoC) in Kashmir. The killing of five more Indian soldiers in an ambush in August and firing along LoC in violation of a November 2003 pact also clouded relations, stalling bilateral peace talks.

In his comments at the inauguration of the India Show in Lahore, Pakistani commerce minister Khurram Dastagir Khan said trade talks between India and Pakistan should go forward “in the atmosphere in which our larger dialogue is resumed and we are able to discuss these issues”.

He also declined to set a time frame by when Pakistan would grant India non-discriminatory market access, or most-favoured nation (MFN) status, under the provisions of the World Trade Organization which provides for unfettered trade between countries.

Analyst Taneja agreed that India should resume its overall peace dialogue with Pakistan. “It was under the aegis of this dialogue that the trade talks actually gathered momentum,” she said.

Elizabeth Roche was in Lahore as a guest of FICCI.

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