SINGAPORE BANKS
TO GET DOMESTIC STATUS
The government will allow the three largest
banks of Singapore free access to the Indian market, with
operational freedom at par with other domestic banks.
The three Singapore banks — Development Bank
of Singapore (DBS), United Overseas Bank and OCBC Bank — will
have far more operational freedom than other big foreign banks
operating in India. These banks have been formally listed
as part of the overall Comprehensive Economic Cooperation
Agreement (CECA) being inked between the two countries. More
banks could be allowed to operate in due course.
The government has also put in place a mechanism
to ensure that Singapore banks that have access to the Indian
market are not used as a proxy by American or European banks
to get the same privileged market access that the India-Singapore
CECA allows. The thumb rule to determine the origin of the
bank is that it must be fully controlled by Singapore entities,
even if its shares are widely held. The RBI will access such
information and then decide the bank's eligibility to operate
on the same footing as a domestic bank in India. The two governments
will be signing the agreement by the end of this month.
The agreement also specifically states that
Singapore banks operating in India will get national treatment
(same treatment as domestic banks), and will be permitted
to acquire a private Indian bank under the existing foreign
investment policy framework.
The Singapore banks will, however, be subject
to the overall restriction imposed on foreign banks — foreign
banks cannot exceed 15% of the total banking sector assets.
However, there is enough head room as current share of foreign
banks in the total assets is merely 7%. This would ensure
that the current regulatory regime for the financial sector,
under the purview of the RBI and Sebi are not superseded by
CECA.
CECA is a trail blazer for India, as the government
is planning to sign similar economic cooperation agreement
with other countries soon. Officials said the bilateral commitments
made by India for financial services, are within the scope
of GATS agreement under WTO. This would also address the RBI
concerns that the country should not allow de facto capital
account convertibility by opening up the window for financial
services too wide.
