Memorandum submitted by Standard Chartered
Bank
— Standard Chartered PLC is listed
on both the London Stock Exchange and the Hong Kong Stock Exchange
and is consistently ranked in the top 25 among FTSE-100 companies
by market capitalisation.
— Standard Chartered has a history
of over 150 years in banking and operates in many of the world's
fastest-growing markets with an extensive global network of over
1,400 branches (including subsidiaries, associates and joint ventures)
in 56 countries in the Asia Pacific Region, South Asia, the Middle
East, Africa, the United Kingdom and the Americas.
— As one of the world's most international
banks, Standard Chartered employs approximately 60,000 people,
representing over 100 nationalities, worldwide.
— Serving both retail and corporate
banking customers, Standard Chartered derives over 90% of profits
from Asia, Africa and the Middle East.
SUMMARY OF
STANDARD CHARTERED
OPERATIONS IN
INDIA
— Standard Chartered is the largest
foreign bank in India, having opened its first branches in Kolkata,
India and in Shanghai, China in 1858. The Bank has 15,092 employees,
117 branches and corporate offices in 31 cities. Standard Chartered
has 2.1 million retail customers and over 1,000 corporate customers,
generating US$817 million in revenue in 2006.
— Scope International is a wholly owned
subsidiary of the Group, based in Chennai. Scope provides IT enabled
services, including back office processing, software development,
system support, transaction processing as well as human resources
support.
— India is the bank's third largest
market, after Hong Kong and Korea.
OUR ASPIRATIONS
FOR OUR
INDIA OPERATIONS
— To ensure that India is integral
to Standard Chartered's aspiration to be the world's best international
bank, leading the way in Asia, Africa and the Middle East.
— To partner India in its growth ambitions
by providing a comprehensive range of personal banking products
and services to its emerging middle class, by offering a full
range of traditional and structured finance solutions to its corporate
clients and by engaging in the drive to eradicate poverty through
development of microfinance initiatives.
— To foster the increasing flows of
trade and investment to and from India. Standard Chartered Bank
India is itself a successful example of foreign direct investment
but it has also helped facilitate almost $2 billion of FDI into
India in the last two years. It has also played a leading role
in supporting flows of investment from India to the UK and elsewhere.
Standard Chartered was the lead arranger in the Tata-Corus acquisition.
— To play a leading role in the community
through its corporate social responsibility programmes for the
restoration of eyesight, HIV/AIDS awareness, and disaster relief.
The Bank sponsors India's largest public participation sports
event: the annual Mumbai Marathon.
— To promote continued liberalisation
of India's financial markets through dialogue with the Indian
authorities and regulators and support for initiatives, such as
the proposed EU-India Free Trade Agreement, which may help remove
the current barriers imposed on foreign banks.
CHALLENGES OF
OPERATING IN
INDIA
The banking industry has a crucial role to play
in accelerating the development of emerging economies and nowhere
is that truer than in India where, for a variety of historical
reasons, this sector has been heavily regulated and dominated
by government-owned entities. There has been a growing awareness
in India that imperfections in the banking market creates barriers
to opportunity and increases costs for small and large enterprises.
A properly functioning financial market helps to connect businesses
with lenders and investors with funds to put into ventures is
critical to future success.
Over the past few years, there have been moves
by the Indian authorities to address some of the obstacles to
development of efficient financial markets. Domestic private banks
have been encouraged, and have achieved considerable success since
they entered the market after 1994. There have been a series of
steps taken to deregulate the market such as a reduction of the
statutory liquidity ratio, deregulation of lending and deposit
rates; freedom in credit delivery systems; the introduction of
prudential accounting norms and allowing entry of private sector
banks.
Nevertheless, India remains a challenging market
for foreign-owned banks. As noted in paragraph 86 of the Select
Committee's report on "Trade and Investment Opportunities
with India", there continue to be a series of limits on the
ability of those banks to make acquisitions in existing Indian
banks and, in some respects, the regulations of the Reserve Bank
of India (RBI) on branch regulatory capital and branch authorisation
have tightened in recent years. Foreign banks are not allowed
to expand their branch or ATM network without prior authorisation
from the RBI and in September 2005 a new "Branch Authorisation
Policy" extended the definition of a "branch" to
include credit card centres and back/administrative offices. Foreign
banks now need to submit, on an annual basis, their requirements
for all branches, credit card centres and bank/administrative
offices and ATMs for the year ahead. This "annual plan"
is then subject to extensive scrutiny which involves considerable
delays. In scrutinising such applications, the RBI is required
to take into account a number of additional parameters including:
(i) the track record of compliance of the
bank and functioning in the global markets;
(ii) even distribution of home countries
of foreign banks having a presence in India;
(iii) the treatment extended to India bank
in the home country of the applicant bank; and
(iv) bilateral and diplomatic relations between
India and the home country.
The Indian government has a WTO commitment to
approve 12 new branch licenses for all foreign banks each year.
In recent years that figure has sometimes been exceeded but the
total cap has not been increased to reflect the growing scale
of the Indian banking market or the degree of interest shown by
existing and potential foreign bank investors. There are over
30 international banks operating in India.
In addition, foreign banks face a variety of
other barriers including a discrimatory rate of tax (at rates
of 48% compared to 35.7% for domestic banks), access to government
public sector undertaking deposits and access to local currency
subordinated debt. There are also difficulties implementing the
Indian government's priority sector lending policies, which require
the banks to undertake direct lending to specific sectors despite
the limits on their branch networks.
The Indian government's "road-map"
for banking liberalisation anticipates that from April 2009 there
will be a removal of some of the restrictions imposed on wholly-owned
subsidiaries of foreign banks so that, in principle, they will
then be dealt with on a par with domestic banks. Subsidiaries
will be allowed to list and dilute their stake so that at least
26% of the paid-up capital of the subsidiary is held by resident
Indians. Foreign banks may be permitted, subject to regulatory
approval, to enter into merger and acquisition transactions with
any private sector bank, subject to an overall investment limit
of 74%. No details of how this plan will be implemented have yet
been announced.
DOMESTIC PRESSURES
FOR LIBERALISATION
A growing number of commentators have pointed
to the need for greater clarity over the scope and pace of market
access liberalisation for foreign banks. Some of these pressures
are domestic, and some external.
Domestically, there is growing realisation that
over-regulation and restrictions on foreign investment may be
impeding the ability of the banking industry in India to respond
to the needs of a rapidly-growing economy. In March 2006, Prime
Minister Manmohan Singh outlined his ambition for Mumbai to become
not only a regional but a global financial hub, not unlike Shanghai.
Mumbai has obvious advantages as a financial hub; centrally placed
between Tokyo and New York to take advantage of good time zone
trading, and strong cultural links, with the lowest cost of operations
in the world.
In April 2007, a High Powered Expert Committee
(HPEC), consisting of 15 senior Indian experts published a 280-page
report on how to develop India's financial services sector and
Mumbai as an international financial sector. The report made 48
different recommendations, including a proposal to accelerate
the pace of market liberalisation, fully opening up banking, insurance,
securities, legal and the accountancy sectors to attract first
class international firms without any hindrance. It remains to
be seen whether the report's recommendation will be implemented.
EXTERNAL PRESSURES
FOR LIBERALISATION
India is a signatory to the WTO's General Agreement
on Trade in Services and has made a limited number of commitments
in the banking sector (such as the binding of the commitment to
approve 12 new bank branches a year). In the current WTO Doha
Development Round, India has stated that it supports an ambitious
outcome to the negotiations in the services chapter but no specific
commitments on banking have yet been tabled.
India has also reached a number of bilateral
agreements with third party trading partners for liberalisation
of trade. At least one of these agreements, with Singapore, has
included provisions on the national treatment of banks from each
country. But these concessions have been limited to no more than
three banks on either side. British banks with significant investments
in India and Singapore are not, therefore, beneficiaries.
On 23 April 2007, EU member states ratified
a proposal by the European Commission for an EU-India free trade
agreement which would cover trade in services. Standard Chartered
Bank strongly supports this initiative which could, if successful,
fundamentally alter UK-India trade and investment relations. The
Bank argues that such an agreement should focus on improving economic
relations and opening up markets rather than focusing on broader
political, social or environmental issues which are the subject
of discussions in other established fora.
UK INDIA RELATIONS
In their report of 13 June 2006, the Select
Committee recommended that the UK Government should encourage
the Indian Government to liberalise fully the service sector and
strongly urge the complete opening up of the financial services
market in India.
Standard Chartered Bank strongly supports this
recommendation and is pleased to note that it has been followed
up in a number of ways. Agreement was subsequently reached on
the establishment of a financial services working group of JETCO
which met in New Delhi in January 2007. Standard Chartered Bank
participated in those discussions with Indian counterparts in
the financial services industry and will continue to support this
new dialogue. The Bank was also represented on the business delegation
which accompanied the Secretary of State for Trade, Alistair Darling,
and the Chancellor of the Exchequer, Gordon Brown, on their visit
to India in January 2007. Standard Chartered is an active participant
in bilateral contacts organised by IBPN, ISFL, the City of London
Corporation and is a member of UKTI's Financial Services Sector
Advisory Board which recently considered a new strategy for the
India market.
CONCLUSION
The UK should have natural advantages in trading
with India; it has strong historical and cultural linkages with
India and a prosperous 1.3 million population living in the UK.
Standard Chartered, as the largest foreign bank in India would
like to see the UK build stronger trading links with this economic
giant. By continuing to build stronger links between the UK and
India, facilitating India's growing business ties with the rest
of the world, by providing opportunities for Asian students to
learn and work in the UK, and most importantly by throwing its
weight behind the EU-India FTA, the trading relationship between
the UK and India will prosper.
June 2007
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