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Indian banking sector set to open up by 2009

DUBAI — India’s banking sector, currently ranked among the most preferred banking destinations in the world, is well on track for opening up fully in 2009, said K. Sitaramam, managing director of State Bank of Travancore (SBT).

Sitaramam, who was in the UAE to meet Sultan bin Nasser Al Suwaidi, Governor of the UAE Central Bank, said India's financial sector is undergoing a consolidation phase with the implementation of Basel II norms next month.

According to a survey conducted by the Federation of Indian Chambers of Commerce and Industries (FICCI), a major strength of the Indian banking industry is the regulatory system, which has helped the country mark its place on the global banking scene. The regulatory systems of Indian banks are rated better than China and Russia; at par with Japan and Singapore but less advanced than the UK and USA.

The country's central bank, Reserve Bank of India (RBI), which has outlined the roadmap for foreign players to grow by allowing them to set up branches in rural India and take over weak banks with an investment of up to 74 per cent, promises to do more in the next two years.

RBI has said that between March 2005 and 2009, foreign banks that were so far restricted to branch operations could also set up wholly owned subsidiaries. The guidelines also noted that foreign bank subsidiaries with a minimum capital requirement of Rs3 billion would be treated on par with existing branches of foreign banks for branch expansion. However, foreign banks cannot grow unrestrained through local acquisitions; they can buy only weak local banks the regulator identifies. The RBI said the second phase of opening up would commence in April 2009, after a review of the experience gained and after due consultation with all the stakeholders.

Sitaramam said SBT, which has made its presence in the UAE as a leading money exchange operator, plans to open a representative office in Dubai. "We have applied for the licence and the Central Bank is considering it," he said.

SBT, which has a network of 700 branches, including 550 in Kerala, currently manages five money exchanges in the UAE under the brand name City Exchange and another two in Oman under the title Global Money Exchange. Besides, it has rupee drawing arrangements with 16 exchange houses in the Middle East. Plans are under way to open two more branches of City Exchange within a year in the UAE, home to nearly 250,000 non-resident Indians (NRIs) from Kerala, he said.

Sitaramam said for the year ended on December 31,2006, SBT recorded total business worth Rs530 billion, marking a 16 per cent surge in deposits and 21 per cent growth in advances to join the league of middle-level banks in the country. In the previous year, it recorded total business of over Rs 450 billion.