RBI sits on DBS expansion for now

The Reserve Bank of India (RBI) is unlikely to give its nod to the expansion plans of Singapore's DBS Bank in India for the time being.

According to banking sources, the RBI is awaiting the issues on the Comprehensive Economic Corporation Treaty ( CECA) to get resolved before clearing the DBS plan.

Under CECA, signed last year between India and Singapore, both the governments have promised to open up the financial sector.

Under the plan, three Singapore banks were to be allowed to open 15 branches in India, while three Indian banks would be given the status of qualifying full bank (QFB), which can raise retail deposits and operate at 25 centres in Singapore. The Singapore banks are DBS, Overseas Chinese Banking Corporation and United Overseas Bank.

The Monetary Authority of Singapore has put on hold branch licenses to Indian banks "" State bank of India, Indian bank and ICICI bank. MAS has cited adequate capital requirement and international rating for these banks are a necessary criteria for getting branch license for starting retail banking in the country.

DBS, the largest bank in Singapore, has operations in New Delhi and Mumbai. It was allowed to open one new branch in addition to its existing branch. It plans to expand its retail and corporate banking network to tier II cities like Pune which has industrial clusters.

Singapore banks have been allowed to set up wholly owned subsidiaries in India, but they have preferred to take the branch route to expand, as setting up subsidiaries requires more capital.

RBI has reservations about giving its nod to the DBS plan as Indian banks have not been able to kick off full-fledged banking activities in Singapore as yet, sources said. MAS has been insisting on ratings as a precondition to offering QFB status to Indian banks.

Singapore, meanwhile, has allowed Bank of Baroda and UTI Bank to open an offshore bank and a merchant bank branch, respectively, but no Indian bank has been given the QFB status which allows it to undertake all banking activities (which a foreign bank branch in India is entitled to do). MAS has been insisting on "ratings" of Indian banks as a precondition to offer QFB status.

In fact, MAS has asked for a sovereign guarantee for granting QFB status to the State Bank of India (SBI). This has not gone down well with the Indian banking regulator.