The Hindu Business Line : Banking with Singapore

Almost five years after the two countries signed the Comprehensive Economic Co-operation Agreement, India and Singapore have removed one major stumbling block in the financial services sector that the treaty was supposed to address. Both the Monetary Authority of Singapore (MAS) and the Reserve Bank of India had not granted full bank status respectively to the State Bank of India and DBS Bank. Now that hurdle has been crossed and State Bank of India will become the first Indian bank to acquire the status of Qualifying Full Bank in Singapore, just as the RBI has allowed DBS Bank to open eight branches in the country.

The SBI already has a branch in Singapore but now it can open services across the island-city; for its part, DBS Bank, which was operating in Mumbai, will now open branches in other metros. ICICI Bank is waiting in the wings and, with the impasse now breached, Singapore should be more than willing to let in India’s second largest bank. But the new spirit of co-operation has implications for more than one entity. The CECA provides space for a more open financial services environment; apart from the SBI and DBS, two other banks from each country can start operations in the other. Whether this means a greater cooperation between the two countries under the terms of the CECA remains to be seen. The 2003 pact calls for an FTA (Free Trading Agreement) between the two nations in goods, services and investments, but there are some basic differences that queer the pitch. Singapore is a global trading centre committed to free trade and would expect maximum access to bilateral trading markets. India’s approach to freeing trade is more gradual and has often led to difficulties in practice that require protracted negotiations. Whether the SBI and DBS deals signal a greater alignment towards freer trade remains to be seen.

There is no doubt that the liberal moves will impact the banking scenario in the country. If this is any indication of the RBI’s commitment to the 2009 goals of a more open system for foreign banks, then clearly, the Finance Ministry will have to do some positive thinking on fortifying the public sector banks against the competition. That issue has been skipped around time and again but, as the target year approaches, PSBs could do with a major shake-up. A serious dialogue must ensue with unions on the merger of SBI and its associates and of weaker banks with stronger ones to enable then to take on competition from financial entities with greater bandwidth offering more complex services. That issue may brook no delay.

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SBI gets full bank status in Singapore