India's largest lender, State Bank of India (SBI) along with Bank of India has decided to discontinue with its plans to restart the branches in Pakistan. The management authorities for both the lenders said that they have taken such a decision because Pakistan has increased the minimum capital requirements by a substantial amount for the foreign banks that want to start operations into the country.
Bank of India's deputy general manager (international operations), Lakshmi Narayana said, "We have cancelled the plan to re-operationalize our banking operations in Pakistan in spite of the go-ahead given by the Reserve Bank of India, as Pakistan recently hiked the minimum paid-up capital requirement for foreign banks operating in Pakistan. In the current scenario, we feel that it is not in the interest of our bank to invest Pak Rs 2,300 crore in Pakistan in a bid to capitalise on Indo-Pak trade that is currently pegged at around $2 billion per annum."
Both SBI and Bank of India had had their branches in Karachi and Lahore till 1965 and in September 2008, these lenders had approached the State Bank of Pakistan (SBP) to seek an approval for starting their branches again.
In a circular issued on September 5th, 2008 the central bank of Pakistan had increased the minimum paid-up capital requirement for foreign banks venturing in Pakistan to Rs 1,400 crore. The foreign banks would be required to add Rs 366 crore by December 2009.
"In order to further strengthen the solvency of individual bank/DFI, it has been decided to raise the minimum capital requirements (MCR) as well as capital adequacy ratio (CAR) calculated as per Basel II, and has to maintain a minimum capital of Rs 23 billion by Dec 2013," said the SBP circular.
Even Pakistani banks like United Bank of Pakistan and Habib Bank had declared about swelling their operations in India, as a part exchange programme. These banks too have not yet approached RBI for seeking an approval to open their braches in India.