Banking curbs stagnating trade with Myanmar: businesses

Improving economic ties with Myanmar may be a key agenda of Prime Minister Narendra Modi’s Neighbourhood First and Act East policies, but if the business community in Myanmar is to be believed, India’s commercial banking sector is not yet convinced about it.

Though the US has withdrawn sanctions on Myanmar and top US banks are reportedly preparing grounds to open accounts with local banks to ensure inter-bank settlement of dollar transactions, the RBI is yet to treat Myanmar on a par with other members of the Asian Clearing Union (ACU).

ACU is a payment arrangement whereby the participants settle payments for intra-regional transactions among the participating central banks.

The RBI’s restriction has come in the way of direct banking settlements between India and Myanmar as both the Indian banks present in Myanmar — State Bank of India and United Bank (representative office) — route transactions through Singapore.

And since banking services are costly in Singapore, trade suffers.

According to Venkatesh AR, MD of Chennai-based Global Pharma and Vice-President of Myanmar-India Business Chamber (MIBC), in Yangon, the banking charge for an average transaction of less than $100,000 through Singapore is $60-70. Direct settlement with Indian banks could reduce costs to $20-25.

Considering that Indian rupees is not a tradable currency (unlike RMB, Yen or Thai baht), and trade is dollar-based. India’s removal of restrictions alone may not be the solution to all problems till American banks enter Myanmar.

Trade too is aware of that. But what makes their job difficult is rejection of many public sector and private banks in India to honour credit payments against LCs (Letters of Credit) or a harmless remittance from the expat community in Myanmar.

The problem is not restricted to trade.

In a communication to the Indian Embassy in April, Venkatesh reported that the Commerce Minsitry-sponsored PHARMEXCIL (Pharmaceuticals Export Promotion Council) had a tough time in remitting money to Myanmar to bear the expenses of a expo in Yangon.

“Due to restrictions imposed by the RBI, many Indian banks treat transactions with Myanmar as untouchable,” Venkatesh said, adding that Indian expats in Myanmar often face problems in remitting money home.

What is surprising is, in many instances, such payments were routed through United Bank, which has correspondence arrangements with 20 odd local banks. The second advising bank in India, which has no risk attached, refused crediting the amount to the expat’s home account, citing system denial.

A banking source confirms the validity of the allegation. “Many Indian banks often deny accepting LCs or remittances from Myanmar. That the RBI hasn’t pulled them yet, willy-nilly prove that they are within their rights to do so,” said a bank official.

Finance lawyer Nishant Choudhary raked up the issue of poor financial connectivity between the two nations at an India-Myanmar conference jointly organised by India’s Institute of Social and Cultural Studies (ISCS) and Myanmar government think-tank Myanmar Institute of Strategic and International Studies (MISIS), in Yangon last week.

Choudhary felt poor banking connection is forcing trade to operate through shell companies in Singapore. Ghanshyam Srivastava, CEO of SBI, Yangon, who was also present at the conference, however, held traders responsible for failing to open LCs with his bank.

Srivastava is not incorrect. Indian banking norms require strict due diligence to avail credit facilities (as in LC), which many small and medium business operating in Myanmar fail to comply. Many Indian importers insist on either advance payment or confirmed LC to do business with Myanmar, thereby increasing the cost of trade.

But, Rajul Goenka, an Indian-origin businessman in Myanmar and Executive Director of Bandoola Group, questions the merit of the argument. “Myanmar has just opened, with many rules and regulations yet to be framed or firmed up. How can you except business here to comply with norms in India?”

According to Goenka, lack of trade facilitation is keeping Indo-Myanmar trade stagnant at $2 billion for nearly five years now, while Chinese, Japanese and Thai, businesses thrive, riding on cheap credit, tradable currency and full-fledged banking support.

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