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Local banks against red carpet welcome for EU counterparts

Business Standard (India)

Local banks against red carpet welcome for EU counterparts

BS Reporter / Mumbai September 26, 2006

An overwhelming majority of Indian banks are against the government granting “full domestic” status to banks from the European Union, as has been given to banks from Singapore.

The comprehensive economic cooperation agreement (CECA) with Singapore may have been appreciated but a similar deal with the EU may not be as advantageous for Indian banks, the Federation of Indian Chambers of Commerce and Industry (FICCI) said in its annual survey on Indian Banking System: The Current State & Road Ahead.

The survey results showed that 85 per cent of domestic banks which responded emphasised that India should not give full domestic status to the EU-based banks under the proposed India-EU CECA.

The banks’ opposition to EU banks being treated on par with them is because the European banks are among the globally most competitive financial services providers.

After the CECA with Singapore, the government is now planning a similar deal with 25-member European Union. The EU is also likely to ask India to liberalise its financial sector on the lines of the India-Singapore CECA.

The survey said 75 per cent of the respondents from among the foreign banks rated their working experience in India as “extremely good”.

All the foreign banks have formulated strategies for future expansion in India, given India’s growth potential over the next decade and beyond.

On increasing the penetration of banking services, banks across sectors said efforts at tapping the rural markets and opening more branches in Tier II and tier III towns are needed. The penetration of banking services to Indian households stands at a mere 35.5 per cent.

Some of the major strengths of the Indian banking industry, which have helped mark its place on the global banking scene, as highlighted by the FICCI survey, were regulatory systems, high economic growth rate, technological advancement, risk assessment systems and credit quality.

Some of the areas that need to be geared up for future growth, as identified by the survey, are diversification of markets beyond big cities, HR systems, size of banks, high transaction costs, banking infrastructure and labour inflexibilities.

 source: Business Standard