RBI raises new concerns over Temasek

RBI raises new concerns over Temasek
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First Published: Mon, Feb 12 2007. 12 07 AM IST
Updated: Mon, Feb 12 2007. 12 07 AM IST
NEW DELHI: The Reserve Bank of India (RBI) has raised fresh concerns over the Centre’s decision to treat the two investment arms of Singapore—the Temasek Holdings and Government of Singapore Investment Corporation (GIC) —as separate entities with special rights, when it comes to buying stakes of Indian banks.
The central bank, which is also the regulator for all banking activities in the country, had pointed out to the Prime Minister’s Office that Temasek controlled a “substantial stake” in the parent of Singapore’s largest bank, DBS Bank, which had two branches in India, said a finance ministry official.
In view of this stake in DBS, the investment plans of Temasek and GIC in Indian private banks are raising concerns about future cross-holding issues, the official added.
As of 31 March, Temasek holds 28% of DBS Group Holdings, the Singapore-based holding company of DBS Bank.
The new concerns are likely to again put the issue on the front-burner between both governments, over a trade pact they signed in August 2005.
The central bank’s new concerns stem from an earlier decision by the Government of India (GoI), as part of the Comprehensive Economic Cooperation Agreement with Singapore, to allow Temasek Holdings and GIC to separately acquire stakes in Indian banks.
Current RBI rules allow a foreign bank with a presence in India to hold only up to 5% equity of a domestic private bank. The rules also allow an individual foreign institutional investor (FII) to own up to 10% in a bank. Temasek already holds 7.41% stake in India’s largest private sector bank, ICICI Bank. GIC also holds 2.29% stake in the same bank—which leaves the combined stake at just below the RBI cap. Temasek wanted to raise its stake in ICICI Bank, but was not allowed to do so by RBI, saying both entities were owned by the Singapore government.
With its substantial stake in DBS, RBI views Temasek not only as a FII but also as a promoter of a foreign bank already operating in India. That is what is causing concern for RBI over allowing Temasek to expand its Indian banking investments.
Last year, the Singapore government complained about the RBI decision to the Indian government, with Singapore’s minister of trade and industry Lim Hng Kiang saying, “If you are not treating them as two separate entities, you are short-changing us and yourself.”
Commerce and industry minister Kamal Nath sought the intervention of Prime Minister Manmohan Singh to resolve the issue, in August. Singh then directed that Temasek and GIC should be treated as separate entities, conditional to there being a firewall between the two. But RBI is yet to issue that necessary notification.
Citing the DBS holding, RBI continues to believe that Temasek cannot be given the same freedom to invest as a regular FII, this official said. The banking guidelines, which govern private bank holdings and foreign bank expansion in India, is within RBI’s jurisdiction, and predates the August 2005 bilateral pact, the official noted.
Just as Temasek has sought to hike its ownership in Indian private banks, DBS had made little secret of its desire to expand its banking operations.
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First Published: Mon, Feb 12 2007. 12 07 AM IST