Pak, Iran banks queue up to open branches

Two banks from Pakistan, MCB Bank and United Bank, have sent proposals to the Reserve Bank of India (RBI) for opening branches in the country.

Three Iranian banks, Bank Pasargad, Saman Bank and Parsian Bank, are also in queue, according to information made available to the Rajya Sabha.

Bank executives said bilateral trade was of interest for these banks to have a presence in India. In the case of Iran, the lifting of sanctions has paved the way for direct relations.

Bank of Montreal (Canada), ING Bank (the Netherlands), and Busan Bank (South Korea) have also sought permission from RBI to set up branches here.

Recently, the Islamic Development Bank (IDB) said it would initiate talks with RBI to allow it to introduce Islamic financing, raising of capital in accordance with Sharia law.

This comes at a time when foreign banks in India have been reducing their footprint because of trouble in their home markets and rising competition from Indian banks.

Rising bad loans have forced some foreign lenders to slow down. Standard Chartered Bank, the largest foreign bank in India in terms of branches, has decided to reduce its unsecured retail and corporate business in the country.

HSBC has decided to shut down its private banking business and RBS has sold its private banking business. Citibank has decided to shut its retail broking business. Swiss bank UBS has approached RBI with a proposal to downgrade its branch to a representative office in Mumbai.

Despite challenges, more banks want to enter India, drawn by banking potential and rising trade.

RBI has also allowed foreign banks to have a larger play in India by treating them almost on a par with local banks. If foreign banks take the subsidiary route, they are offered capital gains tax and stamp duty benefits and are allowed to acquire local banks.

India's commitment to the World Trade Organization restricts market access to 12 branches in a year to all foreign banks taken together.