India fails to make much headway for its banks, professionals in Singapore

The India-Singapore Comprehensive Economic Cooperation Agreement (CECA) seems to have reached a blind alley with the Singapore government’s insistence on maintaining higher standards for Indian banks operating there and constant refusal to give more market access to Indian professionals.

Commerce and industry minister Anand Sharma had recently visited Singapore for the second review of the CECA, which came into effect in August 2005, but the meeting remained inconclusive.

The problem is deeper concerning Indian banks operating there – ICICI and SBI. According to Singapore government officials, it has to maintain rigid banking standards and norms in order to maintain its status of a financial hub.

Indian banks operating there are required to meet very high qualifying standards in order to do business there. The qualifying standard in the form of Asset Management Ratio (AMR) is higher for Indian banks compared to other international banks operating there such as BNP Paribas or Standard Chartered, a senior official told Business Standard.

In view of the high AMR, ICICI and SBI end up making losses in their domestic banking unit (DBU) book and whatever profits are made are purely on the Asian Currency Unit (ACU) books. DBUs are referred to those banking units that offer a range of products and services from current accounts for customers to credit facilities for commercial ventures, while ACU is an accounting unit used for all sorts of foreign currency transactions.

The Monetary Authority of Singapore (MAS) has set the AMR on the DBU at 70 per cent for SBI and ICICI, as against 35 per cent for other foreign banks.  The Reserve Bank of India and MAS are engaged in a discussion on the matter. The very high and differential treatment in respect of applicability of AMR for Indian banks compared to some other foreign banks is “adversely impacting” the viability and profitability of the Indian banks there, the official said.

“The issue has been raised strongly by India at each and every round of discussions under the second CECA review. A favourable resolution of this issue is a must-have for India,” the official added.

Yet another issue that has stalled the review is the passing of the law – Employment Pass Framework – by Singapore government last year under which it has decided to bring down the foreign share of the total workforce to around one-third while encouraging employers to invest in productivity in return for incentives in the form of tax breaks.  However, Singapore had “committed” to give a kind of exception in this rule under the terms of CECA, but it has not responded to repeated requests made by the ministry of commerce and industry.

The second review of the CECA was launched in May 2010 but since then the review was held mainly on these two important issues.