India-EU FTA: Should India Open Up Banking Sector?
Online Publication Date: 16 March 2009
India-EU FTA: Should India Open Up Banking
Sector?
The negotiations on the India-EU free trade agreement
covers among others, liberalization of cross-border trade and investment
in banking services.
A new report questions the policy framework and objectives of
opening up the banking sector under the FTA pointing out that it is not likely
to benefit most Indians especially those in the rural areas. It also debunks
several myths that foreign banks in
India are
associated with higher efficiency and productivity.
The report, published by Madhyam, a research and public
policy organization based in New
Delhi is available for download at: http://www.madhyam.org.in/Special%20Report%20on%20India-EU%20FTA.pdf
The EU is also negotiating an FTA with ASEAN countries and
similar concerns expressed in the report would likely apply in the ASEAN
context. ------------------------------------------------------------------------------------------------------------
SPECIAL REPORT
India-EU Free Trade Agreement:
Should India
Open Up Banking Sector?
by Kavaljit Singh
Since 2007,
India and
European Union (EU) are negotiating a free trade agreement (FTA). The
negotiations not only cover trade in goods but also services, rules pertaining
to intellectual property rights, cross-border investments, competition policy,
government procurement and regulatory issues. One of the key themes under
negotiation is the
liberalization of cross-border trade and investment in
banking services.
The 70-page Special Report questions the policy
framework and objectives of opening up banking sector under the FTA. The report
argues that the liberal entry of European banks is likely to further constrict
the access of banking services in the country: geographically, socially and
functionally. The report reveals that urban-centric European banks are primarily
interested in serving three niche market segments in
India: up-market
consumer retail finance, wealth management services and investment banking. Not
a single
EU-based bank has opened a branch in the rural India despite several
of them (such as Standard Chartered, BNP
Paribas and HSBC) have been operating in India for more than 140 years, points
out the report.
With the help of statistical data and case-studies, the
report debunks several myths associated with the higher efficiency and
productivity levels of foreign banks in
India. It also
debunks the popular conception that foreign banks are discriminated in
India. The
report observes that no reciprocity in market access has been observed in other
trade agreements signed by
India.
The
report documents important developments in the Indian banking sector since
Independence and maps out several disturbing trends (such as growing financial
exclusion, decline in bank lending to agriculture and small enterprises, etc.)
in the post-liberalization period.
The report questions the much-touted
benefits of opening up banking sector under the India-EU FTA. Are big European
banks going to augment the reach of the banking system to millions of Indians
citizens who have no access to basic banking services? What specialization and
experience do European banks have when it comes to providing basic banking
services to landless rural workers and urban poor dwellers?
Will the India-EU FTA reduce the domestic regulatory
space?
In the wake of severe crisis gripping many European banks,
the report calls upon trade negotiators to rethink about opening up banking
sector under the FTA.
The Report is available for download at
online:
(http://www.madhyam.org.in/Special%20Report%20on%20India-EU%20FTA.pdf)
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TABLE
OF CONTENTS
1. The Background
2. EU is
India's Largest
Trading Partner
3. Services Take the Cake
4. Financial Services:
The Modes and Models of Liberalization
5. EU's Wish List
6. The
Burgeoning Financial Services Trade
7. The Lure of Niche Banking
Markets
8. Banking Services Market Access: A One-way Street?
9.
India: A
Bank-Based Financial System
10. Foreign Banks in
India
11.
The Rationale Behind Nationalization of Indian Banking Sector
12. The
Positive Outcomes of Bank Nationalization Regime
13. The Introduction of
Priority Sector Lending
14. Banking Sector Liberalization in
India
15.
Trade Agreements and Banking Sector Liberalization
16. No Reciprocity in
Market Access
17. Are Foreign Banks Discriminated in
India?
18.
The Branch Licensing Policy Favors Foreign Banks
19. The Stark Anomalies
in Banking Assets Ownership
20. The Extent of Financial Exclusion in
India
21.
Financial Inclusion and Foreign Banks
22. Foreign Banks: More Frills,
Less Banking
23. Decline in Bank Branches in Rural
India
24.
The Rise in Unbanked and Underbanked Regions
25. Sharp Decline in
Agricultural Credit
26. Decline in Bank Lending to SMEs
27. Steep
Rise in Bank Lending to Retail and Sensitive Sectors
28. The Limitations
of Microcredit Programs
29. Global Financial Crisis and India-EU
FTA
30. Some Pertinent Questions
31. Rethinking Banking Sector
Opening Up
32. Who Benefits? Who Loses?
For hard copies of the report, please contact
us.
Sudheer Rawat
Madhyam
148, Maitri Apartments
Plot
No.28
Patparganj
I.P. Extension
New
Delhi: 110092
Phone: 91-11-22243248
Email: madhyamdelhi@gmail.com
Website: www.madhyam.org.in
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