KUALA LUMPUR, Sept 17 — Three Indian banks have set up a consortium to undertake commercial banking operations in Kuala Lumpur later this year.
The banks — the Bank of Baroda (40 per cent), the Indian Overseas Bank (35 per cent) and Andhra Bank (25 per cent) — hope to set up India BIA Bank after securing the approval of India's central bank.
It isn't clear, however, if Malaysia's central bank has consented to a new licence although at least one government official — a deputy minister — has endorsed the plan as a step forward in bilateral ties.
According to industry officials, the troika is in the midst of raising funding in India for the plan to proceed.
If it does materialise, the entry of an Indian bank into Malaysia indicates the growing trade and investment ties between the two countries against a backdrop of a recently-inked free trade agreement between Delhi and the Association of Southeast Asian Nations.
Increasingly, big Indian corporations like Reliance, Birla and Avanta have invested in projects in Malaysia and BIA could be hoping to cash in on a growing business.
If it does pan out, BIA will also mark the return of an Indian bank to Malaysia after a space of over 20 years. In the 1960s, there were three such banks in the country — the Indian Overseas Bank, the Indian Bank and the United Commercial Bank.
In 1971, however, the government of Indira Gandhi nationalised all the banks in India which made it impossible for the banks to continue operating under Malaysian banking guidelines; this precludes government-owned banks from doing business.
As a result, the three banks merged and formed the United Asian Bank. UAB, however, came unstuck during the 1986 recession and had to be rescued by CIMB, currently Malaysia's largest investment bank.
The plan could also fall under Prime Minister Datuk Seri Najib Razak's proposal earlier this year to liberalise Malaysia's financial services sector.
Najib said that Kuala Lumpur intended the issue nine new banking and insurance licences between now and 2012. Najib also said that foreign equity thresholds would be raised from 49 per cent to 70 per cent in investment banks, Islamic banks, insurance companies and takaful (Islamic insurance) operators with immediate effect.
The only point that could be a potential problem, according to the industry players, is the amount of capital BIA would have to bring to the table. The central bank has said commercial banks would have to have at least RM1 billion. — Business Times Singapore
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