The Reserve Bank of India (RBI) and the Monetary Authority of Singapore (MAS) have agreed to open up the financial sector of their respective countries with a formal finance ministry clearance set to come any day.

Following that, DBS Bank Ltd, the largest bank in Singapore in terms of assets, will get the Indian central bank’s nod to go ahead and open eight new branches across India, up from two now. The Reserve Bank will also issue 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 will offer qualifying full bank (QFB) status to the State Bank of India (SBI). Armed with this, India’s largest lender will be able to raise retail deposits and open 15 centres in Singapore, including automated teller machines (ATMs) and point of sales operations.

SBI has only one branch in Singapore, but has no access to retail deposits.

“I can’t recall a single instance of a foreign bank getting eight branches at one go," notes a banking analyst with a brokerage who did not want to be identified. People close to the development said that four of the eight branch licences had been pending since last year and the RBI approval is for all eight branches to be in tier II and tier III cities and not metros.

More opportunities: The main branch of DBS Bank at its headquarters in Singapore. The bank will get the Indian central bank’s nod to go ahead and open eight new branches, from two now, across India. (Munshi Ahmed / Bloomberg)

Under the Indo-Singapore Comprehensive Economic Cooperation Agreement (CECA) that came into effect in August 2005, both countries 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 will 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 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 South-East 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.

The DBS Group, South-East Asia’s largest lender, said on Monday that it is optimistic about obtaining approval for its expansion in India, but has yet to receive confirmation from India’s central bank.

“We are optimistic that we will receive the go-ahead to expand in India soon. However, as of now, nothing is confirmed," said Karen Ngui, a spokeswoman for the Singapore bank.

Under the World Trade Organization (WTO) 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, the Indian central bank 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 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.

DBS, which has the largest retail network in Singapore with 83 branches and some 880 ATMs handling at least 50% of all ATM transactions in Singapore, 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 advance 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.

Reuters’ Jean Chua in Singapore contributed to this story.