Indian banks watch out, the Chinese are coming.
Industrial and Commercial Bank of China (ICBC), which has been licensed by the Reserve Bank of India (RBI) to set up commercial operations in India, could well be the first of four banks from China to be allowed to set up local branches.
The grant of licence to ICBC comes ahead of proposed discussions between India and China on the "strategic economic dialogue".
Planning commission deputy chairperson Montek Singh Ahluwalia will lead a high powered delegation to Beijing in the last week of this month to define the contours of a framework for enhanced economic cooperation between the two neighbours on a range of sectors covering energy, steel, telecommunication, banking, among others.
China's "big four" government-owned commercial banks also include Bank of China, the China Construction Bank and the Agricultural Bank of China. These have been pressing for regulatory approval from India to start commercial operations on grounds of the "reciprocity principle," a government source, who did not wish to be identified, told HT.
The source said the issue of granting licence to the other three state-owned Chinese banks are likely to feature in the discussions.
Last year, India and China signed a Memorandum of Understanding during Chinese Premier Wen Jiabao's state visit, that would allow Chinese banks to set up branches in India. At present no bank from mainland China has operations in India.
The only bank that has significant commercial presence in China and is operating in India is Taiwan's Chinatrust Commercial Bank.
In 2009, the RBI's Committee on Financial Sector Assessment (CFSA) had recommended that opening of the banking space to foreign players should be based on "reciprocity". In other words, India should open doors for banks of those countries that have allowed Indian banks to set up branches.
State Bank of India (SBI), Bank of Baroda, Bank of India and Canara Bank each has a branch in China.