GIC, Temasek to be treated separately

The impasse over allowing Temasek and the Government of Singapore Investment Corporation (GIC) to buy up to 10 per cent equity in a private bank in India has been resolved with Prime Minister Manmohan Singh deciding that the two be treated as separate entities.

This means that both GIC and Temasek will individually be allowed to buy up to 10 per cent each in private Indian banks like ICICI Bank.

A government official told Business Standard that the prime minister took the decision at a meeting recently. Commerce and Industry Minister Kamal Nath had sought the intervention of the prime minister to resolve the issue after Singapore sought clarity on India's position on the matter.

India had, at the time of finalising the Comprehensive Economic Cooperation Agreement with Singapore in August 2005, assured the city state that both GIC and Temasek would be treated as distinct investment entities.

They were to be allowed to own up to 10 per cent each in a listed Indian company, on a par with other foreign institutional investors.

However, the Reserve Bank of India (RBI) did not allow Temasek to raise its stake in ICICI Bank at the time of its public issue last year on the grounds that GIC and Temasek were both owned by the Singapore government.

The move to treat Temasek and GIC as two distinct entities comes close on the heels of Singapore indicating that it would offer qualifying full banking status to two Indian banks by the end of the current financial year.

"The Monetary Authority of Singapore has submitted a roadmap to the RBI, according to which qualifying full banking status is expected to be granted to the State Bank of India and ICICI Bank by March 2006," an official said.

India, in turn, has also indicated granting the request for around a dozen branches by two Singapore banks, United Overseas Bank and Development Bank of Singapore (DBS).

In the past, the Singapore government had said it would not budge from its stand that Temasek and the GIC were two distinct entities and each of them should be allowed to hold the maximum permissible stake in an Indian company.

"If you are not treating them as two separate entities, you are short-changing us and yourself," Singapore's Minister of Trade and Industry Lim Hng Kiang had told a group of visiting Indian journalists earlier this year.

The minister had also said the banking regulator should have the same set of rules for all foreign banks operating in India and allow DBS to set up more branches.

The Comprehensive Economic Cooperation Agreement between India and Singapore has become a bone of contention between the RBI and the Monetary Authority of Singapore on a number of issues.