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India and Pakistan put trust in banks

PAKISTAN'S LARGEST private sector bank, Habib Bank, whose controlling stake is held by the Aga Khan, may not be allowed to start a branch in India following 'some concerns' expressed by security agencies. However, the National Bank of Pakistan (NBP), which is wholly Pakistan government-owned, will be allowed.

india Updated: Oct 09, 2006 15:34 IST

PAKISTAN'S LARGEST private sector bank, Habib Bank, whose controlling stake is held by the Aga Khan, may not be allowed to start a branch in India following 'some concerns' expressed by security agencies. However, the National Bank of Pakistan (NBP), which is wholly Pakistan government-owned, will be allowed.

The Aga Khan, based in Geneva, is a revered figure, the 49th Imam of the Shia Imami Ismaili Muslims. "For various reasons we are uncomfortable about allowing Habib Bank to set up its branch in Mumbai," said a senior finance ministry official, who wished not to be identified. But he refused to detail the security concerns.

New Delhi may request Islamabad to propose an alternative bank that can be allowed to operate in India as part of the bilateral understanding reached between the two banking regulators -- the Reserve Bank of India (RBI) and the State Bank of Pakistan (SBP).

Both sides agreed to allow two banks from each country to set up branches in the other. Despite the seesawing of Indian and Pakistani diplomatic relations, following the Mumbai and other blasts this year, steps towards reciprocal banking in each other's countries, have been steadily taken.

India is likely to request Pakistan to propose the name of an alternative bank during the Secretary-level talks in New Delhi next month.

Similarly, India's largest bank, State Bank of India (SBI) and the state-owned Punjab National Bank (PNB) have also sought approval from the Reserve Bank of India (RBI) and State Bank of Pakistan to set up branches in Pakistan.

Habib Bank has historic associations with India. Its first ever branch was started in August 1941 at Mumbai. After Partition, Habib Bank shifted its headquarters to Karachi, was nationalised in 1974, only to be privatised in 2004. The Aga Khan Fund for Economic Development (AKFED) acquired 51 per cent stake in the bank and the Pakistan government retained the rest.

Ironically, AKFED is also promoter of the Mumbai based Development Credit Bank (DCB), where it initially held 58.43 per cent shares, later diluted to 30.13 per cent through a public issue. No security concerns have so far been raised about its presence in India!

The first branches of both SBI and PNB will be in Lahore. "We applied for a license to set up branches in Pakistan about three months ago and are awaiting approval.

Before partition, PNB had 18 branches in Pakistan. We want to begin operations in Pakistan from Lahore because the city is historically associated with the bank," chairman and managing director PNB S.C.Gupta told HT. PNB was headquartered in Lahore in pre-partition India.