Caution needed at WTO

RBI says India should be careful in opening up financial services

India will adopt a cautious approach while making its offers on the financial sector as part of the negotiations on services at the World Trade Organisation.

Officials said the Reserve Bank of India and the finance ministry felt that India should not open up its financial services without looking at the commitments of other countries.

It will improve its banking offer only marginally by increasing the number of branches to 20 from the present 12, and retain the assets cap on foreign banks at 15 per cent.

"While there is a case to relax the cap on on- and off-balance assets by foreign banks from 15 to 20 per cent, it has been decided that the cap can be retained at 15 per cent in our revised offers. Also, the present level of most foreign banks is around 7 per cent," an official told Business Standard.

The revised services offer is likely to be taken up by the Cabinet committee on WTO shortly, before they are submitted in Geneva.

Some sections of the government feel that India has been shortchanged by Singapore in the financial sector. It has not only obtained a commitment on binding the FDI caps in banking and telecom, but has also managed relaxed prudential norms for its select banks.

The commerce ministry has proposed binding the FDI limit in banking at 49 per cent, and allowing 100 per cent FDI in non-banking finance companies and venture capital.

The binding in the insurance sector will be 26 per cent, while in telecom it will be 49 per cent. So far, India has not bound the FDI limits in banking, insurance and telecom at the WTO.

WTO members were required to submit their revised proposals by May 31, 2005. So far, around 16 countries, including the US, Canada, New Zealand, Singapore, and the EU, have submitted their revised offers in services.