Mumbai: Almost three years after the Indo-Singapore Comprehensive Economic Cooperation Agreement (CECA) came into effect, the Reserve Bank of India (RBI) and the Monetary Authority of Singapore (MAS) on Tuesday opened up the financial sector of their respective countries.
DBS Bank Ltd, the largest bank in Singapore in terms of assets, has got the Indian central bank’s nod to open eight new branches across India, up from two now. RBI has also issued a licence to United Overseas Bank Ltd (UOB) of Singapore to set up shop in India, making it the second bank from Singapore to have a presence here.
In turn, MAS has offered qualifying full bank (QFB) status to State Bank of India (SBI). Armed with this, India’s largest lender will be able to raise retail deposits and open up to 25 centres in Singapore, including automated teller machines and point of sales operations. So far, SBI has only one branch in Singapore, but has no access to retail deposits.
Mint exclusively reported on 18 March that RBI and MAS had agreed to open up the financial sector with a formal government clearance set to come any day. The Indian government cleared the deal on Monday. RBI is the banking regulator in India, while MAS regulates the entire financial sector in Singapore, including capital markets.
“This is a huge opportunity and responsibility for us and we are up to this challenge,” SBI chairman O.P. Bhatt told Mint from Colombo. There are 113 commercial banks in Singapore and out of these only six are QFBs. They are Citibank NA, Hong Kong and Shanghai Banking Corp. Ltd (HSBC), BNP Paribas, ABN Amro Bank, Standard Chartered Bank and Malayan Banking Berhad.
Rajan Raju, managing director and head of South and So-uth-East Asia, DBS, told Mint from Singapore: “We will now have a meaningful footprint in India which is one of our core markets.” DBS will focus on wealth management and wholesale banking in India.
DBS will open its eight branches across the country—Bangalore, Chennai, Kolkata, Moradabad (Uttar Pradesh), Nashik (Maharashtra), Pune, Salem (Tamil Nadu) and Surat (Gujarat).
According to the most recent data available, in October 2007, 29 foreign banks from 19 countries were running 273 branches across India.
Under CECA that came into effect in August 2005, India and Singapore promised to open up their financial sectors to each other. So far, two Indian banks—Bank of Baroda and Axis Bank Ltd—have been allowed to set up operations in Singapore.
Under CECA, 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 SBI will be the first one to get it.
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 ranges from full banks to wholesale banks and offshore banks. Uco, Bank of India, Indian Overseas Bank and Indian Bank are full banks while others are offshore banks. Full banks offer the whole range of banking activities, but barring Uco (which has two branches), all other banks have one-branch presence in Singapore. Axis Bank has a merchant banking licence, too. A number of these banks also have licences to operate limited purpose branches for remittance business.
Singapore 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.
DBS, which has the largest retail network in Singapore with 83 branches and some 880 ATMs handling at least 50% of all ATM transactions, entered India in 1994 by setting up a representative office in Mumbai. This was converted into a branch in 1995.
Ten years later it opened its second branch in New Delhi when it also acquired 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 advances portfolio of Rs1,229 crore. On a Rs225 crore income, it posted a net profit of Rs74 crore last year.
UOB, Singapore’s second largest lender, 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.
Under the World Trade Organization norms, the Indian banking regulator is required to offer 12 new licences every year to all foreign banks but RBI has been liberal when it comes to branch licensing.
For instance, between July 2006 and June 2007, RBI allowed seven foreign banks that have already been operating in India to open 20 new branches and an additional seven to enter India by setting up representative offices.
Between July 2006 and October 2007, six foreign banks: ABN Amro Bank NV, Barclays Bank Plc., Shinhan Bank, Deutsche Bank AG, HSBC and Standard Chartered Bank had set up 13 branches, and four foreign banks, Banco Bilbao Vizcaya Argentaria, Banca di Roma, Depfa Bank Plc. and National Australia Bank, opened four representative offices.