Seeking greater market access to the Indian financial services sector, South Korea has pressed for regulatory approval for faster expansion of its banks in India.
However, the South Korean banks, including Shinhan Bank, Woori Bank and the Industrial Bank of Korea, which have applied to open branches, may have to wait longer as New Delhi has insisted that Seoul first follow the principle of ?reciprocity? and allow Indian banks such as State Bank of India to open branches in their country, official sources told FE.
This comes ahead of South Korean President Park Guen-hye?s India visit starting January 15. The issue was on the agenda for the India-Korea finance ministerial meeting held here on Wednesday and attended by finance minister P Chidambaram and South Korea?s deputy PM and minister of strategy and finance Hyun Oh Seok.
?The applications of the South Korean banks have been pending since last year. However, we have learned that Seoul has been reluctant in giving permission to Indian banks, including SBI, to open branches and start retail operations. So we are asking for reciprocity,? a finance ministry official said.
The demand for Korean banks? faster panning out in India comes in the wake of the India-Korea Comprehensive Economic Partnership Agreement (CEPA) that came into force in January 2010 and the recent RBI guidelines on subsidiarisation of foreign banks.
The RBI allowed those foreign banks which commenced banking business in India before August 2010 the option to continue their business through the branch mode, though they will be ?incentivised? to shift to a WoS model.
Not much progress has been made by the banks of both the countries in gaining more access in each other?s markets despite a CEPA between India and South Korea that seeks to boost trade in goods and services, including financial services as well as facilitate higher investment flows.
Since the signing of CEPA, merchandise trade between South Korea and India has grown from $11.99 billion in 2009-10 to $17.3 billion in 2012-13, a major factor necessitating the presence of more banks and branches of both the countries in each other?s territory. The bilateral trade target is set at $30 billion by 2014-end.
Several Korean companies, including Hyundai Motors, Samsung, Lotte Group and LG, have invested around $3 billion in India, while Indian firms such as Tata Motors, M&M and Novelis have invested around $2 billion in Korea.
Currently, only one Indian bank (Indian Overseas Bank) has a branch in South Korea. SBI has a representative office in that country and is seeking to open a branch there. South Korea?s Shinhan Bank has three branches in India and Woori Bank has one, while Hana Bank, Korea Exchange Bank, Kookmin Bank and Industrial Bank of Korea have representative offices in India.
Shinhan Bank now wants to open three more branches while Woori bank and Industrial Bank of Korea are seeking permission to start one more branch each. Sources added that in a recent letter to the department of financial services and the finance minister, South Korean ambassador to India Joon-gyu Lee has said that the applications of banks have been pending for long and wanted the process to be expedited.
Seoul has cited the CEPA, according to which India is to give ?favourable consideration? to the application for establishment of branches by Korean banks, provided they meet India?s requirements.
In a statement, the finance ministry said, ?Both sides agreed to consider issue of licence necessary to establish bank branches and offices in each other?s country if an applicant bank is judged to have qualified based on relevant laws, regulations and eligibility requirements.?