Mumbai: The Reserve Bank of India (RBI) and the Monetary Authority of Singapore (MAS) have finally agreed to open up the financial sector of their respective countries.
According to people familiar with the development, both the regulators have already reached an understanding and a formal announcement is expected soon.
According to the arrangement, MAS will offer the qualifying full bank (QFB) status to State Bank of India (SBI). This will enable India’s largest commercial bank to raise retail deposits and open 15 centres in Singapore, including automated teller machines and point of sales, but no brick and mortar branches. Until now, SBI has only one branch in Singapore but no access to retail deposits.
RBI, in turn, will issue a licence to United Overseas Bank Ltd (UOB) of Singapore to set up shop in India. UOB will be the second bank from Singapore after DBS Bank Ltd to have a presence in India. DBS, which currently operates two branches, will be given licence to set up eight more branches.
“RBI has already given its in-principle nod to the entry of UOB and once the Central government clears it, both the regulators will formally open up the sector,” said an official familiar with the development. After the banking regulator clears a foreign bank’s entry dia, it is vetted by the Centre for security reasons.
“RBI and MAS are working closely to review the applications by banks to be set up or to expand in the respective jurisdiction,” said and MAS spokesperson. “This will help enhance economic connectivity between India and Singapore. Once these details are settled, the appropriate announcements would be made.”
DBS, Singapore’s largest bank, entered India in 1994 by setting up a representative office in Mumbai that was converted into a branch in 1995. It opened its second branch in New Delhi in 2005. In the same year, it also agreed to pick up a controlling stake in Cholamandalam Investment and Finance Co. Ltd, a financial services firm with interests in consumer finance, asset management and securities. For the fiscal year ending March, it had a deposit base of Rs3,836 crore and advance portfolio of Rs1,229 crore. On a Rs225 crore income, it posted a net profit of Rs74 crore last year.
UOB is a leading bank in Singapore that provides a range of financial services through its global network of 524 branches, offices and subsidiaries in 18 countries and territories in Asia-Pacific, western Europe and North America. It has banking subsidiaries in Singapore, Malaysia, Indonesia, Thailand and the Philippines.
MAS was asking for 15 branch licences for Singapore banks, but RBI cannot offer so many in one year because under the World Trade Organization (WTO) norms, the Indian banking regulator is required to offer 12 new licences every year to all foreign banks.
Since August 2005, when the Indo-Singapore Comprehensive Economic Cooperation Agreement (CECA) came into effect, two Indian banks—Bank of Baroda and Axis Bank—have been allowed to set up operations in Singapore. DBS, too, has been granted one more branch licence in India, taking its network to two. Under the CECA, both the governments promised to open up the financial sector.
Three Singapore banks are to be allowed to open 15 branches in India, while three Indian banks will be given the QFB status. However, no Indian bank has yet been given the status and MAS has been insisting on “ratings” of Indian banks as a precondition to the status even though the treaty does not stipulate that.
MAS’ official stance is that QFB licences could be given to those Indian banks that meet its “prudential requirements” and the CECA does not guarantee automatic entry. The insistence on prudential requirements is in conformity with the general principle under WTO and other free trade agreements (FTAs). Singapore has 10 FTAs in force.
Singapore has only five domestic banks among more than 100 commercial banks that operate in the country. However, unlike in India, foreign banks in Singapore cannot undertake all banking activities. Only six banks can do so as they have the QFB status. They are Citibank NA, Hongkong and Shanghai Banking Corp. Ltd, BNP Paribas SA, ABN Amro Bank NV, Standard Chartered Bank and Malayan Banking Berhad.
Among Indian banks, Bank of India, Indian Overseas Bank, Indian Bank, Uco Bank, Bank of Baroda, SBI, ICICI Bank Ltd and Axis Bank have a presence in Singapore. Their status varies from full banks to wholesale banks of offshore banks. Except for Uco Bank, which has two branches, all other banks have a single-branch presence in Singapore.
Singapore, an important financial hub for entire SouthEast Asia, is a strategic money centre on the lines of London, Frankfurt, New York and Tokyo. It will play a very important role for Indian entities when the country opts for full convertibility of its currency.