INDIA BUSINESS WORLD - FEBRUARY 2006
THE MONTH THAT WAS

SINGAPORE ASKS SBI TO GET A GUARANTEE

It has come as a rude shock to an institution that is considered a proxy for the Indian economy, an institution that had borrowed hard currency to help a nation hit by sanctions. The 200-year-old State Bank of India

the country's largest bank is aghast at a recent communication from the authorities of an island state almost the size of Mumbai.

The Monetary Authority of Singapore (MAS) the hardboiled financial regulator and central bank — has said that SBI will not get a full-fledged banking licence in Singapore unless the government of India furnishes a guarantee While SBI can continue to run its offshore banking branch that deals in US dollars and international currencies, a central guarantee or cover is a pre-requisite if SBI wants to deal in Singapore dollar, the local currency. This means that without the guarantee, SBI cannot accept deposits from or give loans to local and retail consumers in Singapore.

“We are not prepared to accept this in any way… The bank has taken up the matter with the government and the Reserve Bank of India. We are trying to resolve the issue,” a senior SBI official said. SBI, known for its solid fundamentals, conservative accounting practices and hidden reserves, finds it difficult to accept

the condition since a guarantee or letter of comfort against possible default is given, if at all, only to a weak institution.

But MAS, one of the toughest regulators in the world, has its own set of prudential parameters to decide whether an entity will get a licence to operate as a qualifying full bank (QFB) a bank that can deal in local currency. Responding to an ET mail, MAS said, “Under the Comprehensive Economic Cooperation Agreement (CECA) that Singapore has signed with India, MAS is prepared to offer three QFB licences to Indian banks that meet our prudential criteria. As a sign of our commitment to CECA and to deepening economic relations with India, we have approved UTI Bank and Bank of Baroda's applications to set up a merchant and offshore banks respectively in Singapore.

”While BoB, UTI Bank and even the country's biggest private player ICICI Bank want to focus on the offshore market, SBI is keen to set up up shop in the local market as well. “The State Bank of India has expressed interest in a QFB application and MAS is working closely with the relevant parties to review the application,” said the MAS spokesperson. On the specific issue on whether a guarantee has been sought, the MAS spokesperson refused to comment. “We don't comment on our dealings with individual financial institutions,” she said.

Singapore has six QFBs. The licences were given by MAS in 1999 and 2001. “The applicants were assessed based on prudential considerations that include the bank's financial strength, credit ratings, capital and global asset size, reputation and track record,” said the MAS official.

The development is an indication that banking services will not be governed by either rules of reciprocity or tenants of a treaty between two countries. It may be recalled that recently RBI went against the treaty to disallow Temasek from further raising its shareholding in ICICI Bank