Open banking sector, urge foreign players

Foreign banks eyeing the Indian market want the European Union (EU) to make a consolidated pitch for a bilateral trade agreement on the lines of the Comprehensive Economic Cooperation Agreement (CECA) with Singapore.

Labelling the RBI's plan for opening up the banking sector to foreign players as "restrictive," Barclays Capital Vice-Chairman David Wright today said the British investor was looking to raise its stake in UTI Bank from the present 4.9 per cent.

"We have 4.9 per cent stake in UTI bank and would like to increase it... It would depend on the rules and price," he told reporters on the sidelines of the Sixth India-EU Business Summit. Foreign ownership is restricted by a list of identified private Indian banks and also because investment is capped at 5 per cent of the paid-up capital.

The CECA allows three Singapore banks to set up wholly-owned subsidiaries in India. A similar dispensation is also available to three Indian banks that set shop in Singapore.

"The scale of the Singapore deal should not be underestimated as it puts us at a disadvantage," Mervyn Davies, group chief executive, Standard Chartered said at the event.

Davies stressed on the need for a trade agreement based on the RBI norms for ownership and governance of banks announced in June.

He added that the RBI restrictions would put a break on reforms and was detrimental to competition.

Romesh Sobti, executive vice-president, ABN Amro, pointed out that Indian banks looking to grow in EU also faced many hurdles. "I know of a private Indian bank which is finding it difficult to get regulatory permission to open 12 branches in the UK," Sobti said.

The situation in Singapore was no better and it could take years to get a banking licence to operate a branch there, he said. Sobti said the Indian banking system was ready for consolidation but the regulatory stand was baffling.

Dwelling on the potential for financial services in India, Wright said the current sovereign rating of 'BB' assigned to India did not reflect the position correctly as other countries in the same rating category included Morocco, Panama and Costa Rica. A higher rating would result in cheaper long term finance, Wright said.