— PHOTO: PTI

NEW DIMENSION: Finance Minister P. Chidambaram lighting the lamp during the inauguration of the first full-fledged branch of Bank of India in Shenzhen, China, on Thursday. Also seen in the picture are: Nirupama Rao, Indian Ambassador to China, and City Mayor, Xu Zhong Huang.

SHENZHEN: Adding depth to the burgeoning Sino-Indian economic engagement, Bank of India on Thursday opened its first branch in the Chinese mainland. It is, in fact, the second Indian bank to start commercial banking operations in China within six months, underscoring the momentum of trade across the Himalayas, which crossed $25 billion last year.

Speaking at the inauguration function in the southern boom town of Shenzhen where BOI's China branch is located, India's Finance Minister, P. Chidambaram, said India and China were together driving the creation of an Asian century. Only countries which were jealous of China's and India's growth cast them as competitors, whereas, in fact, they were friends and collaborators. It was not China vs. India but China and India, Mr. Chidambaram concluded.

Banking links

The Mayor of Shenzhen, Mr Xu Zong Heng, who also attended the function, called the opening of BOI's branch a breakthrough in bilateral trade, while the Indian ambassador to China, Nirupama Rao, added that developing mature banking links is an invaluable part of bilateral trade relations.

In an exclusive interview with The Hindu, BOI Chairman and Managing Director, M. Balachandran, said the opening of the new branch is not only aimed at facilitating bilateral trade between India and China but at creating a hub for imports and exports between China and several global trade centers like Hong Kong, Singapore, Indonesia and Vietnam — countries where BOI has branches.

Chinese companies are already doing business worth around $750 million with BOI, he revealed. This business is expected to cross the billion dollar mark before long, much of which will now be routed through the Shenzhen bank which Mr Balachandran estimates will have a turnover of $500 million within a year.

BOI's new branch begins operations just a few months after China fully opened up its banking sector under its commitments to the WTO. Under the new rules foreign banks that wish to enter China face two choices: they can either incorporate as local subsidiaries in which case they enjoy full access to China's retail banking market or they can open a branch. Capitalisation requirements for incorporation are extremely high, making opening of branches the preferred option for most foreign banks.

BOI's Shenzhen branch currently operates under a licence that restricts it to foreign currency transactions for a period of two years. After the requisite time has passed BOI can then apply for a level-2 licence which would enable it to deal in Yuan denomination transactions with Chinese and foreign corporates.

Closed to retail market

The retail market in China however would remain largely closed to BOI even down the line, since the Chinese only allow foreign branches to accept deposits from local individuals of more than RMB 1 million, a sum far beyond the reach of most middle-class Chinese.

The Shenzhen branch has brought with it $25 million in capital for which the city presented BOI with an RMB $2 million `incentive cheque'. Incentive cheques are one of the many measures that Shenzhen has put into place to attract the foreign investment.

In response to a question raised by The Hindu about India's ongoing push towards developing SEZs, Mr. Chidambaram said that Shenzhen showed that SEZs were especially useful tools for industrial development in areas that lacked pre-existing infrastructure.

While there is no Chinese bank in India at the moment, China's largest bank, the Industrial and Commercial Bank of China, is reportedly looking into setting up an Indian branch soon.

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