For the first time since the Indo-Pak War of 1965, relations between India and Pakistan are thawing from a trade perspective. Indian banks are among the first to eye a slice of the Pakistan economy.
Last week, Pakistan’s banking regulator State Bank of Pakistan (SBP) gave the nod to two Pakistani banks to open branches in India, which could well hasten the process of a similar entry by Indian banks into Pakistan, according to banking circles.
However, based on the new policy wherein the government of India has allocated different global destinations to commercial banks here, it is reliably learnt that Punjab National Bank (PNB) and Bank of India (BoI) could be the only two banks to open branches in Pakistan for now.
A senior PNB executive said on condition of anonymity, “We have filed an application with the RBI about a month ago for our Pakistan foray.” He however, declined to comment on the number of branches planned. The New Delhi-based bank started its banking business from Lahore (now in Pakistan) in 1894.
Sources at Bank of India were non-committal on the development but did not rule out the possibility of opening a branch in Pakistan. State Bank of India’s (SBI) is a little different. A senior SBI executive said the bank had unsuccessfully applied to the SBP in 2008 (prior to the Mumbai terror attacks) to open a branch in Pakistan.
"Our application was held in abeyance (by the SBP), though not explicitly rejected. It works on reciprocity; since India didn't permit Pakistani banks to do business in India, SBP probably didn't give its nod." The terror attack of November 2008 precipitated the decline in trade relations between both countries.
The situation has changed since then, with both countries eager to expand bilateral trade currently pegged at about $2 billion, raising hopes for banks on both sides. SBI had two branches in Karachi and Lahore till 1965, when war broke out between the two countries.
The capital requirement of Rs 300 crore per branch stipulated by SBP was also a dampener, but sources said it could be revisited now in the light of recent developments.
But now, banks on both sides of the border are assured of enough opportunities for expansion, as both countries are keen to scale up two-way trade to $6 billion by 2014.
The development has also been welcomed by the Federation of Indian Export Organizations (FIEO). “Economically, it would benefit traders on both sides, as it would result in savings on bank charges. And, dealing with the same bank in both countries would reassure traders,” said Ajay Sahai, DG & CEO, FIEO.
He said a trade delegation from FIEO will visit Pakistan soon to explore further opportunities for bilateral co-operation. This could result in India exporting auto components to Pakistan for the first time.
The spurt in bilateral trade is also expected to enable Pakistan to correct the trade imbalance which is currently skewed in favour of India.