Reciprocal Terms Missing
in the Proposed India-EU Pact
Kavaljit Singh
The Economic Times
April 7, 2009
Since 2007,
EU is seeking greater market access and national treatment
for European banks through cross-border supply and direct investments. Unlike
other bilateral agreements, the potential implications of India-EU FTA would be
far-reaching since nine EU-based banks together controlled 65% of total assets
of foreign banks in
Since 2000, several European economies have registered a
significant growth in their banking services net exports.
For European banks,
One of the key policy issues determining market access is
reciprocity. How much market access Indian banks would get in return? Except
On the contrary, foreign banks are given undue favour when
it comes to priority sector lending and branch licensing. The Indian
authorities have imposed lower priority sector lending requirement at 32% for
foreign banks as against 40% for Indian banks.
Foreign banks have the freedom to decide the location of
their branches. While for new private banks, it is mandatory that after three
years of operations, they should open one out of four new branches in the rural
or semi-urban areas. This lopsided policy works in favour of foreign banks
because rural branches generate less profit due to low-value transactions.
Not a single European bank has opened a branch in rural
areas though many of them have been operating here for more than 140 years.
Their lending to agriculture, SMEs and weaker sections has been negligible. It is
distressing to note that European banks are not serving the poor and low-income
people residing in urban areas.
Since many big European banks are in the midst of turmoil
since 2007, it raises serious questions about their efficiency, ‘best
practices’, state-of-the-art risk management models, corporate governance and
transparency norms. Keeping these in view, policymakers should rethink about
the benefits of opening up banking sector under India-EU FTA.
(Author is with Madhyam, a Delhi-based NGO)