NEW DELHI: THE government decided to unleash its mega merger of banks not only as a way of strengthening bank balance sheets, but as a necessary condition before entering into negotiations on trade in services, especially financial services, with trade partners.
“For long the finance ministry has held that before we enter into any negotiations on trade in services where we may have to give concessions in opening up more branches to foreign banks, we need to usher in a wave of consolidations within our own banking sector to create banks which are strong enough to face up to competition,” said a top finance ministry official.
India has avoided joining any multilateral negotiations on trade in services by either opting out or by seeking rights to export temporary software and other technical personnel under a clause called Mode 4, a demand India’s trading partners are not too keen to concede.
“We are under pressure from our major trade partners, including the US, UK and European Union, as well as in negotiations at RCEP (Regional Comprehensive Economic Partnership) on opening up our banking and insurance sectors,” said Prof. Biswajit Dhar of the JNU.
The US and European countries have been demanding greater access to Indian financial markets in return for concessions in the services sector. Officials point out that the next round of global trade talks as well as free trade pacts being negotiated will see demands for opening up of the financial sector.
Officials said the government had long felt that for the long term India’s banks need to merge or organically grow into larger entities before the Indian financial market is opened up to large foreign banks.
Only one Indian bank—State Bank of India—has a position among the world’s top 100 banks by assets. The S&P ranking places SBI at the 55th spot. By contrast, China’s “Big Four” state-backed banks—Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Agricultural Bank of China Ltd. and Bank of China Ltd.—are in the top four global spots, posting a combined $13.637 trillion in assets.