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Indo-Pak nod for cross-border retail banking

Confidence-building moves by India and Pakistan have received a major boost as the central banks of the two neighbours cleared the way to set up bank branches across the border, media reports said on Wednesday.

The Reserve Bank of India (RBI) and the State Bank of Pakistan (SBP) have agreed to allow two banks each from both the countries to start full banking operations across the border. In a landmark development, the State Bank of India (SBI) and Bank of India have cleared to establish branches in Pakistan while from the Pakistan side the National Bank of Pakistan (NBP) and United Bank Limited (UBL) of Pakistan would be allowed to operate in India.

“We have fruitful discussions with the RBI and the two sides have agreed to issue a full banking licence to two banks of each country,” Yaseen Anwar, Governor, SBP, said on the sidelines of a conference organised by the Institute of South Asian Studies in Singapore.

Electronic and print media reports quoted the SBP governor as saying that it might take a few months for the Indian banks to get approval for licence. He said Pakistani banks are ready to start full banking operations in India.

“We held discussions with RBI Governor D Subbarao to issue banking licences,” Anwar said.

“The landmark move will pave the way for long-term and sustainable growth in the region. It will bring inclusive growth and bring more confidence among the investors,” Jitendra Gianchandani, chairman and managing partner of Dubai-base Jitendra Consulting Group, told Khaleej Times.

He said this major confidence-building measure will also help India get the Most Favoured Nation (MFN) status by the year-end. “Yes, the decision has cleared the way for MFN status,” he said.

Pakistan has yet to notify granting the MFN status to India, which had granted the same to Islamabad way back in 1996. The MFN status means that India gives trade treatment to Pakistan at par with its other partners.

The analysts said the new initiative on the banking front will help normalise bilateral trade, which is estimated at more than $2 billion. The two sides have agreed to increase the trade to $6 billion by 2014 by introducing confidence-building measures.

Recently, the RBI notified the decision to allow foreign direct investment from Pakistan in key areas excluding defence, space and atomic energy and sectors/activities prohibited for foreign investment.

According to banking sources, many Indian and Pakistani banks have shown interest to operate branches across the borders to encourage investment and boost bilateral trade in coming years. However, any progress to allow more banks in the second phase will only be possible by next year.

“Some requests are under consideration by the two central banks, but no immediate decision is expected,” the sources said.

MCB Bank, one of the largest private sector banks in Pakistan, recently filed an application with the SBP to open three branches in New Delhi, Mumbai and Amritsar. The bank, which has 1,130 branches and 4.5 million customers, may receive a go-ahead from the central banks of the two countries by next year. It already has a major presence in Sri Lanka and an indirect presence in the UAE, Bahrain, Azerbaijan and Hong Kong.

muzaffarrizvi@khaleejtimes.com