Lanka to treat Indian, domestic banks on a par

Indian banks could soon find operating in Sri Lanka easier, with the island nation offering to treat them on a par with its domestic banks under the proposed Comprehensive Economic and Partnership Agreement (CEPA).

Government officials said Sri Lanka had, during the last meeting of the two sides on financial services, said it would be willing to grant national treatment to Indian banks.

Indian entities would be able to undertake mergers and acquisitions without stringent pre-approval requirements. They would, however, be subject to clear rules of origin which would be worked out by regulators of the two countries.

Sri Lanka has also agreed to examine a request by India that its institutional investors, including insurance companies and mutual funds, be allowed to freely trade in Sri Lankan government securities and other debt instruments.

The country is considering New Delhi's request for waiver of 100 per cent tax for acquisition of property for head offices and branches. New Delhi has, in turn, proposed to fully relax limits for employment of expatriate staff from the island nation in executive positions in Indian branches.

Sri Lanka has offered to increase the number of expatriate staff from three to six executives per bank and one more for each additional $5 million capital.

It remains to be seen if the move by the Sri Lankan government would translate into Indian banks acting on the opportunity quickly. The Sri Lankan economy is significantly smaller than the Indian economy, and the development comes at a time when lending opportunities in India are growing.

India had requested that in addition to the six core personnel, Sri Lanka should consider granting three executives per branch for three years.

Officials said a sub-group on economic cooperation under the agreement (CEPA) would also examine a proposal to step up cooperation between the stock exchanges of the two countries.

"There is a proposal that the National Stock Exchange of India and the Securities Exchange Board of India could provide technological support so that exchanges in both countries operate on similar platforms," an official said, adding that at a later stage the two countries could even have common listing requirements and similarity in tax on dividends and capital gains.

India has offered to consider, under the double taxation avoidance agreement, Sri Lanka's proposal to relax the Reserve Bank of India's regulation in repatriation of profits for Sri Lankan investors.