Rethinking Liberalisation of Banking Services
under the India-EU Free Trade Agreement. This paper critically examines the potential costs and benefits of liberalization of trade and investments in banking services under the proposed India-EU FTA. The paper calls for rethinking on banking services liberalization particularly in the light of current global financial crisis.
SO M O
Rethinking Liberalisation of Banking Services
under the India-EU Free Trade Agreement
SOMO Paper | September 2009
The European Union (EU) and India are negotiating a free The EU?s initiative to sign an FTA with India is part of its
trade agreement (FTA) which encompasses liberalisation trade strategy, called ?Global Europe ? competing in the
and deregulation of financial services. This paper wants world?, which sets several long-term economic and strategic
to raise policy issues that run much deeper than the current goals. An important strategic goal is to open up services
liberalisation debate and consider who will benefit and markets in lucrative ?emerging market economies? such as
who will lose from the FTA. This paper first looks at the India, especially because liberalisation negotiations at the
performance of EU banks in India, especially as compared World Trade Organisation (WTO) have been stalled. Since
to the developmental needs of the un-banked and under- 2006, the EU has been negotiating many FTAs such as with
banked regions and groups of people in India. This first South Korea and the South East Asian countries of ASEAN.
part of the paper is based on research by K. Singh, India-EU The financial services sector has in the past years been a
free trade agreement - Should India open up banking major focus of the EU because of the high profitability of
sector? (Madhyam, 2009). Since the financial and economic the sector. The EU has not yet indicated any change of
crisis has highlighted the fact that liberalised and deregu- focus regardless of the crisis.
lated financial services have damaging effects on a country,
this also papers analyses how free trade agreements India has also initiated negotiations for bilateral agreements
potentially reinforce rather than mitigate those trends. with Thailand, Japan, South Korea, Chile, MERCOSUR,
the Gulf Cooperation Council (GCC) and ASEAN. India has
already signed an FTA with other regional member countries
Financial services liberalisation also belonging to SAARC (SAFTA) and with Singapore.
India and the EU launched negotiations to create a free
Both the EU and India have already opened up their banking trade agreement in June 2007. While negotiations were
and other financial services markets (such as insurance) expected to be completed within two years, now, at the
through a series of domestic policy initiatives, coupled with end of summer 2009, it looks unlikely that they will be
binding bilateral and multilateral trade and investments finished before 2010. q
SOMO Paper 1
The lure of Indian banking markets Indian bankers eye EU markets
The EU wants to increase access to India?s financial services The India-EU negotiations on the banking services, however,
market and has been consistently demanding removal of cannot be simply construed as a one-way process. A number
restrictions on the admission of foreign banks in India, of big Indian banks, both state-owned and private, are also
particularly those related to licensing of bank branches. seeking the removal of EU market restrictions to increase
The motives behind entering banking markets in India are their presence in EU countries (particularly in the UK). They
obvious. The Indian financial services market is considered aim to serve Indians based in these countries and to assist
very lucrative with a tremendous scope for growth, even big Indian corporations acquiring European companies.
after the financial crisis, given the relative low numbers of It has been estimated that nearly 30 million people of
credit cardholders, housing mortgages, and deposit of Indian origin live abroad. Their remittances are the highest
household savings (just 18% of the GDP). Also wealth in the world at US$ 24 billion annually, and Indian banks
management and advisory services are seen as a growing want to increase their market share by expanding their
market given that India has been creating millionaires at presence abroad and handle more of these remittances.
the fastest pace in the world. According to Barclays Wealth At present, 16 Indian banks (11 state-owned and 5 private)
Insights report (2008), India will have 411,000 millionaires operate a network of 192 offices abroad.
with an aggregate wealth of $1.7 trillion by 2017.
Similarly, large mergers and acquisitions and shares issuing So far the EU has not previously faced many requests by
in corporate India have required investment banking, an its trading FTA partners to liberalise the EU financial services
area in which European banks such as Deutsche Bank have market. India, however, has indicated that it would be
a competitive edge over Indian banks. The UK is foremost willing to reciprocate with more market access to the EU
in demanding the liberalisation of banking services market financial industry in exchange for increased EU market
in India since that would boost the UK banks? net service liberalisation for Indian banks.
exports that have been rising up to around a record
£14 billion in 2007 (up from £12.1 billion in 2006) .
Earnings from securities transactions, derivatives and The political economy of
foreign exchange transactions account for the majority
banking sector liberalisation
of UK banks? net exports.
In 1991, India launched a policy of liberalisation and
The large-scale problems in the banking and financial globalisation which changed its policy of economic self-
sectors of many European countries caused by the financial development behind closed borders. This brought about
crisis are not likely to deter their banks from entering Indian important developments in the financial sector, ranging
markets and asking for more openness, for various reasons. from a liberalised regime for the entry of foreign banks to
First, the Indian economy is not suffering a severe financial divestiture in state-owned banks, interest rate deregulation,
crisis ? due to lack of financial liberalisation ? nor a recession the dismantling of developmental financial institutions,
like the one many western countries are facing. India?s and the mushrooming of micro-credit programmes and
economy is expected to grow in the coming years, albeit non-banking financial institutions. Indian authorities have
at a diminished rate. Second, the need for financial inter- unilaterally opened up the banking markets to foreign
mediation is on the rise since many businesses in India are banks. The number of branches permitted each year to
still growing. Third, profits in the financial sector in India foreign banks has been higher than the WTO commitments
are likely to be much higher than those in mature European of offering 12 new licences every year to all foreign banks
markets. Fourth, India has been planning since 2005 to (new and existing). For instance, during July 2006-June
remove restrictions on banking sector. Notwithstanding 2007, India allowed seven already established foreign
the financial crisis, many European banks (including banks (including ABN AMRO Bank, Barclays Bank and
Deutsche Bank and Barclays) have applied for licences Deutsche Bank) to open 20 new branches and additionally
to operate in India. The overall strategy of the European seven foreign banks were permitted to set up representative
banks would be to move out of the recessionary conditions offices.
by making investments in those countries which are least
or not affected by recession. In 2008, 30 foreign banks from 21 countries were operating
in India with a network of 277 bank branches and 765
off-site ATMs (cash points). The 9 EU-based banks operating
in India are Royal Bank of Scotland (that acquired in 2007
ABN-AMRO Bank?s operations in India), Antwerp Diamond
Bank, Barclays Bank, BNP Paribas, Calyon Bank, Deutsche
Bank, HSBC, Société Générale and Standard Chartered.
2 Trade & Investment
By asset size, out of the top 10 foreign banks in India, of different bank groups (see table 1 and 2) and concluded
6 are EU-based. The 9 EU-based banks together controlled that ownership had no definite relationship with efficiency.
65% of total assets of foreign banks in India in 2008.
Foreign banks are also expanding business through many Policies in favour of foreign banks and their profit-making
off-site ATMs, non-banking finance companies and off- strategies seem to have had more bearing on their higher
balance sheet exposures (e.g. derivatives). profits than efficiency levels. In the case of branch licensing
policy, foreign banks are not required to open bank offices
Foreign banks that have established themselves in India in the rural areas while domestic banks (both state and
have been generating handsome returns in comparison private) are. Foreign and private banks have been reluctant
with domestic counterparts and international benchmarks. to open bank branches in un-banked and under-banked
For instance, during 2005-06, the net profit per branch for regions that are less profitable than those in the urban and
foreign banks was Rs.120 million as against Rs.3.3 million metropolitan areas. Most bank branches of foreign banks
for an average state-owned bank in India. The net profits have located in metropolitan areas, in order to meet their
of foreign banks increased by 49% in 2007 as compared own profitability criteria and compete with rival banks.
with 27% of the entire banking sector in India. Out of the 272 bank branches of the 29 foreign banks in
2007, 83.5% were located in metropolitan areas, 15.8%
in urban areas and 0.7% in semi-urban areas. The top EU
Foreign banks are allowed more banks have totally neglected rural and social banking in
India (see table 3).
The high profits of the foreign banks cannot be explained According to statistics of the Reserve Bank of India (RBI),
by higher efficiency alone ? even if that is the usual argument a mere 264 bank branches, out of a total 6804 branches
in favour of financial liberalisation. In the case of India, the (1.5%), were opened in unbanked areas during 2002-2007.
central bank of India made a rigorous analysis of efficiency Consequently, 391 districts out of a total 602 districts in
India have been ?under-banked?, i.e. with a population per
branch that is higher than the national average of 16,000.
Table 1. Bank group-wise efficiency levels
Since liberalisation policies started in 1991, rural bank
branches have been closing down while there has been
Bank Group Efficiency Levels 2006-07
a rapid growth of the bank branches in the urban and
State Bank Group Technical 0.95
metropolitan areas. The number of bank branches in the
rural areas declined continuously in the period from 1997
Nationalised Banks Technical 0.93
down to 42.7% of total bank branches in 2006-07. In contrast,
Delhi, for instance, witnessed a jump of more than 30%
Old Private Banks Technical 0.72
in bank branches, from 1,256 branches in 1997 to 1,639
in 2004. Especially the poorer states such as Uttar Pradesh
New Private Banks Technical 0.95
and Bihar as well as the entire North-eastern region have
witnessed a major decline in the number of bank branches.
Foreign Banks Technical 0.79
Source: Reserve Bank of India, 2008 (quoted in K. Singh, o.c., p. 38
Table 2. Some efficiency parameters (2006-07, in per cent)
Bank Group Operating Cost to Total Assets Net Interest Margin Intermediation Costs Return on Equity
State Bank Group 1.98 2.79 2.97 15.30
Nationalised Banks 1.67 2.58 3.32 14.65
Old Private Banks 1.88 2.74 3.63 10.32
New Private Banks 2.11 2.36 3.61 13.57
Foreign Banks 2.78 3.74 5.51 13.86
Source: Reserve Bank of India, 2008 (quoted in K. Singh, India-EU free trade agreement -Should India open up banking sector?, 2009, p. 36)
SOMO Paper 3
Table 3. Branches of EU-based banks in India (in per cent)
Name of Bank Rural Semi- Urban Urban Metropolitan Total
ABN-AMRO Bank 0 0 9 19 28
Antwerp Diamond Bank 0 0 0 1 1
Barclays Bank 0 1 2 2 5
BNP Paribas 0 0 0 9 9
Calyon Bank 0 0 0 6 6
Deutsche Bank 0 0 4 6 47
HSBC 0 0 9 38 10
Societe Generale 0 0 0 2 2
Standard Chartered 0 0 12 78 90
As at end-March 2008
Source: Reserve Bank of India, 2008 (quoted in K. Singh, o.c., table 9)
Dramatic decline in rural A recent study into the causes of farmers? suicide in the
state of Andhra Pradesh found 76% to 82% of the victim
and agriculture credit
households had borrowed from non-institutional sources
and the interest rates charged on such debts ranged
Not only do foreign banks not have branches in the rural from 24% to 36%.
areas, they are also not obliged to fulfil the agricultural loan
commitments under the priority sector lending policy. In contrast, car loans come cheaper than agricultural loans
This reinforces the trend of declining share of rural bank in India. In addition, there are large disparities between
branches that leads to a fall in deposits, credit and credit- men and women in terms of access to banking services.
deposit ratios in the rural areas. This is in sharp contrast to In particular, lack of credit to women in general, and poor
the 1970s and 1980s when a significant shift in bank women in particular, is prevalent despite their greater
lending took place in favour of the agricultural sector. contribution in terms of individual saving deposits.
For instance, from a mere 1.3% in 1969, the share of direct
lending to agricultural and allied activities reached around The bias towards urban areas is expected to grow as Indian
16% in the 1970s and 14% in the 1980s. Since the mid-1990s, credit markets are driven by consumer loans and just 20 cities
the share has ranged between 11-12% of the total bank contribute over three quarters of new wealth creation.
lending. As on March 2006, the share stood at 11.9%.
Despite the decline in the share of agriculture in the GDP
from 36% in the 1980s to 18% in 2006-07, about two-thirds Decline in lending to small businesses
of the country?s 1.3 billion people are still dependent on
agriculture for their livelihood. Since 1991, lending to small and medium-sized enterprises
(SMEs) has declined from 15% in 1991 to 11% in 2003.
Recent studies by National Bank for Agriculture and Rural As on March 2007, small-sized enterprises (SSEs) received a
Development (NABARD) and others have pointed out that mere 3.5% of the total bank credit. A closer examination of
an overwhelming majority of farmers ? 72% ? have no access statistics reveals that state-owned banks lend more money
to the banking system. In the poorer and backward regions to the SMEs than other banks and financial institutions.
such as North East and East India, 95% and 81% of rural
households respectively are excluded from banking services. The growing neglect of bank lending to SMEs can have
adverse implications on economic growth and employment.
Moreover, the small and marginal farmers (who constitute There are 13 million SMEs in the country that together
the bulk of farming community) are discriminated against as account for 80% of all companies in India, 40% of India?s
banks favour lending to big farmers who can offer collateral. total production, 34% of exports and are the second largest
The increasing number of farmers? suicides in the country- employer after agriculture.
side is a reflection of the neglect of rural and social banking
in India or the higher cost of rural financial services. One
of the important factors behind the increasing number of
farmers? suicides in the Indian countryside is lack of access
to cheap credit from banks and institutional sources.
4 Trade & Investment
Decline in services to poor clients Rise in lending to sensitive sectors
Since the early 1990s, the share of small borrowers in Foreign and domestic private banks have contributed to
the total number of bank accounts as well as bank credit tremendous growth of bank lending, particularly lending
has been steadily declining despite upward revisions in to risky and speculative businesses such as stock market,
the credit limit over the years while the number of bank commercial real estate, derivatives trading, and others.
accounts with higher credit limits has increased. In real estate lending, which constituted 91.9% of the total
lending to the entire so-called ?sensitive sector? (which also
The share of small borrowers in gross bank credit was includes loans given to capital market and commodities
25.4% in 1989 but fell to 16.4% in 2006. ARBI Survey under- sectors), new private banks and foreign banks were the
lines that the present-day banking system discriminates leading players during 2006-07 with respectively 32.3%
against all types of small borrowers who seek credit for and 26.3% of the total loans. Foreign banks had the highest
productive and consumption purposes. The Survey further exposure to capital markets, followed by new private banks,
found that even among small borrowers, banks tend to old private banks and state-owned banks.
favour relatively better-off sections of society. The majority of
accounts of small borrowers are managed by state-owned The bias towards rich clients and more sensitive sectors
banks of India which accounted for 36.9% of the total bank can also be observed as follows: as per on-balance sheet
accounts and 43.9% of the total bank credit to small businesses, domestic banks (both state and private) own
borrowers as on March 2007. as much as 92% of the total banking assets in India while
the foreign banks own the remaining 7% as on March 2007.
However, foreign banks are by far the biggest players in
Bias to rich clients off-balance sheet businesses , with a combined market
share of 67.9% in 2007. Off-balance sheet businesses
One should note that foreign banks are also exempted include foreign exchange transactions, derivatives instru-
from the Differential Rate of Interest (DRI) scheme under ments and endorsements, which are operated with little
which loans are offered to people below the poverty line regulation. They are especially offered to rich clients and
(particularly to scheduled caste and tribal people) at a provide new sources of income to the banks. As a result,
much lower rate of interest with easy repayment rates the total share of foreign banks as a percentage of the
and no margins. assets of India?s banking system (both on- and off-balance-
sheet items) was 49% in 2007, far above the commitments
Foreign banks, as well as big domestic private banks given at the WTO. As on March 2007, the off-balance sheet
competing with them, have especially targeted wealthy exposure of foreign banks was at 1,816% of their total
and affluent customers. Retail and consumer loans to such assets, followed by new private sector banks (215%), old
customers form the fastest growing financial services market private sector banks (44%) and state-owned banks (43%).
in India. Foreign banks tend to ?exclusive banking? by The current financial crisis in the US and several European
offering services to a small number of clients, instead of countries has clearly demonstrated that ultimately risks
?inclusive banking?. They charge higher fees from customers taken by both on- and off-balance sheet activities should
for providing banking services and maintaining a bank be paid for by the banks, and that too large amounts and
account with foreign banks requires substantial financial instruments on the nontransparent off-balance sheet are
resources. creating and aggravating serious financial stability risks.
In the wake of the global financial crisis, bank lending by
foreign banks in particular has come down. The credit by FTA negotiations go beyond
foreign banks in India (on year-to-year growth as on 23 July
2009) declined by 7.1%, while for private banks the credit
went up 4.2%, and for state-owned banks it increased By beginning September 2009, little public information
21.9% during the same period. The deposits were up was available about the ongoing FTA negotiations on
16.4% for foreign banks, 26.4% for state-owned banks, financial services between India and the EU. Based on the
and 6.7% for private banks and during the same period. above analysis and other free trade agreements in which
In other words, foreign banks have substantially cut back the EU is involved, the following important issues need
lending in India following the financial crisis while they are to be discussed.
still experiencing positive growth in deposits there.
More liberalisation commitments
The EU?s interest in increasing access to the Indian
market in financial services is also clear from liberalisation
SOMO Paper 5
requests made by the EU to India during the WTO tion of the current banking regulatory framework reveals
negotiations under the General Agreement on Trade that it is no longer the case. Prudential norms for capital
in Services (GATS). As a result, India might be pushed reserves adequacy apply equally to foreign and national
during EU-India FTA negotiations to commit itself to banks, and deposit insurance cover is uniformly available
more liberalisation than is currently the case and for to all foreign banks in India on non-discriminatory terms.
instance bring its existing unilateral market opening India issues a single class banking licence to foreign banks
regime under the FTA. According to FTA rules in which is equally allowed to Indian banks. This means that
services laid down in the GATS agreement (Art. V), foreign banks are free to undertake any banking activity
India is allowed to liberalise fewer services, including (e.g. wholesale, retail, private banking, investment banking,
financial services, than the EU. However, the EU?s recent foreign exchange, etc.) and that contrasts with many
negotiation record with other developing countries has countries including the USA, Singapore and China. This
shown that the EU wants services sector liberalisation single class licence policy has turned out to be a gold mine
to go up to 80% and that financial services is a priority for foreign branches in India as they are handling most
target sector. If India would like to exclude both essential financial services of their home-country client companies,
services and financial services because of the unknown a substantial portion of foreign institutional investments
risks of liberalisation and privatisation, it would not be and foreign exchange business.
able to offer 80% liberalisation. So the FTA negotiations
outcome might include more financial services liberali- As explained above, domestic banks rightly complain that
sation than India has currently agreed under GATS. foreign banks are given undue favour by the central bank.
Only domestic banks (both state and private) have to lend
Permanent liberalisation 18% to the agricultural sector and 10% to the weaker
Bringing liberalisation under the FTA would first of all sections of the society in addition to meeting the require-
mean that India, and the EU, could hardly reverse their ments under the DRI scheme. In addition, foreign banks
liberalisation processes. When India or the EU would have lower priority sector lending requirements, set at
like to reverse liberalisation and withdraw commitments, 32% (of their adjusted net bank credit or credit equivalent
both parties would have to agree, or India would have amount of off-balance sheet exposures, whichever is
to compensate the EU, or vice versa, according to higher), as against 40% for Indian banks. ?Priority sector
FTA rules. lending? aims at ensuring adequate credit flows to vital
sectors of the economy and according to social and devel-
Rules that liberalise and deregulate opmental priorities, such as loans to students, farmers,
In addition to making commitments on more market small businesses, food and agro-industries, often at
opening for EU financial services, the EU wants to concessional rates.
include in the FTA specific rules by which the liberalised
(financial) services have to abide, as was done in other Given that rules in those FTAs that have already been
recent FTAs. Most of these rules are similar to existing agreed so far with the EU have allowed foreign financial
or future GATS rules. Depending on the negotiations, services and their providers to be treated more favourably,
they could become more or less stringent in the FTA. this more favourable treatment of foreign banks could
In general, these rules result in restrictions on how the continue under the EU-India FTA unless the wording of the
governments can govern and regulate financial services, national treatment rule is changed into ?equal treatment?
in India as well as in the EU, as explained below. (in stead of ?no less favourable? treatment).
The non-discrimination principle also makes it more difficult
FTAs allow more favourable treatment to discriminate in favour of banks and financial operators
who are more active in rural areas and in promoting
of foreign banks to continue
environmentally friendly activities.
Non-discrimination is a basic principle of free trade agree-
ments and is incorporated in the ?national treatment? rule.
This means that foreign financial services and their providers FTA rules ignore measures to deal
may not be treated less favourably than national financial
with the financial crisis
services that are committed under the FTA.
Full foreign ownership
The EU?s negotiation position is based on the general An FTA rule that the EU is very probably proposing
perception that India offers very restrictive entry of foreign to India is the requirement, similar to the one in GATS,
banks to the Indian market and that the regulatory frame- that EU banks are allowed to acquire 100% ownership
work discriminates against foreign banks. A closer examina- of Indian banks, unless exceptions to that rule are
6 Trade & Investment
made. The Government of India?s roadmap of financial value of its assets which would prevent it from becoming
sector liberalisation originally planned that from April ?too big to fail? ? and from having to be bailed out with
2009 onwards India would allow foreign banks to taxpayer money.
acquire domestic banks. However, given the financial
crisis, Indian authorities have put this second phase of Liberalisation of capital movements
roadmap on hold. Indeed, due to the stock market The FTA model employed by the EU requires countries
meltdown, the lower valuations of many Indian banks to facilitate cross-border capital flows and only restrict
might have offered an attractive opportunity to capital movements in very exceptional circumstances.
European (and other) banks to acquire parts of the However, capital movement restrictions have proven to
Indian financial sector. Already, despite the severe crisis be necessary to prevent a financial crisis or to intervene
at home, many European banks are expanding their during financial turmoil.
businesses in India and asking for new licences as part
of their strategy to start mergers and acquisitions once Had India already signed an FTA that included liberalisation
Indian authorities remove existing restrictions. During according to the government?s roadmap and on the basis
the financial crisis, it has also become clear that foreign of the EU?s FTA rules, restrictions on foreign acquisitions of
banks in developing countries have tended to repatriate Indian banks would have been lifted in times of a financial
capital and not reinvesting profits in the host economy. crisis. EU based banks could then potentially have increased
their operations and new risky financial products without
Liberalisation of speculative and risky major improvements in EU or international regulations and
financial instruments supervision of financial services providers, as is still the case
The EU has been interested to open India?s market for in September 2009. Although FTAs and GATS allow pruden-
speculative and risky financial products, such as trading tial measures by governments to protect bank customers
in derivatives, as the EU has already requested India in and prevent financial instability, these have been restricted
the GATS negotiations. If India would have liberalised by many conditions and banks have been allowed to become
derivative trading in food commodities under an FTA too big to fail.
with the EU, it would hardly have been able to prohibit
this trading in order to prevent speculation that make
food prices too expensive for the poor, as it has done. Conclusion: who benefits, who loses?
Easy entry for new services The developments discussed above reflect the limitations
As in other FTA negotiations so far, the EU might ask and risks of current banking services liberalisation policies.
India to introduce a rule for very easy authorisation Under the current circumstances and without major
of new financial services. However, financial innovation changes, a liberal entry of European banks facilitated by
has now proved to be very risky, lacking supervision the proposed India-EU trade agreement is likely to further
and difficult to regulate. constrict the access to banking services in the country,
geographically, socially and functionally. As there are always
No guarantees and means to ensure that effective losers and gainers in free trade and investment agreements,
national supervision and regulation it is very important for policy makers and all stakeholders
During the FTA negotiations with Cariforum, the EU to openly analyse and discuss the potential distribution
had requested the Caribbean islands to endeavour to effects of such agreements on different types of economic
adhere to international regulatory and supervisory activities and groups of people.
standards, which the Caribbean states refused. These
international financial standards have now proved to be In addition, the provisions in FTAs are likely to further
totally inadequate to deal with financial conglomerates destabilise the financial system and so make future crises
operating world wide and new ones are not yet in more likely. In the light of the ongoing financial crisis and
place. lack of adequate international regulation and supervision,
there should be some serious rethinking about banking
No restrictions on the size and number of and other financial sector liberalisation and deregulation
financial operators, nor on the value of their through FTAs, at both India and EU levels. It is also high
financial transactions time for the current public and political discussions about
FTA rules based on EU proposals that follow GATS financial reforms, right up to the G-20 level, to review the
rules restrict in many ways how governments can impact and restrictions on financial regulations included
regulate the financial sector, unless exemptions are in free trade agreements.
made at the time of negotiation. For instance, ?market
access? rules prohibit to limit the size of a bank and the
SOMO Paper 7
1 Unless otherwise specified, the analysis and figures used in this paper She found that the minimum balance amount required to maintain
are based on the research by K. Singh, India-EU free trade agreement ? a savings account with a public sector bank ranges from Rs.100 to
Should India open up banking sector?, Special Report, Madhyam, 2009, Rs.1000 in urban areas while the foreign and private sector banks
is much lower.
2 Barclays Wealth Insights - Volume 5: Evolving fortunes. 6 May 2008, p. 26 - 27 8 Off-balance sheet business refers to the various fee and commission
3 United Kingdom balance of payments, The pink book 2009, Office for based businesses which have no direct reflection on the bank?s balance
National Statistics, UK sheet either on asset or liability side. Although derivative instruments are
4 1 US $ = Indian Rupees 48 (September 2009) meant for hedging risks by banks, overexposure in derivatives and other
5 Niranjan Rajadhyaksha, ?The Dark Side of Consumer Credit,? off-balance sheet instruments could itself aggravate the risks posed to
Businessworld, 2 October, 2006, p.46 the balance sheet of banks. The banks and financial institutions run
6 EPW Research Foundation, ?Financial inclusion in a deregulated regime?, off-balance sheet businesses through the creation of special-purpose
Economic and Political Weekly, May 20, 2006, pp.1940-42 investment vehicles with flexible accounting. Since such vehicles are
7 Laura Ceresna, an independent researcher, carried out extensive considered ?off-balance sheet?, they operate with little regulation.
field-visits and surveys in and around Bangalore during October 2008 - In India, off-balance sheet businesses have witnessed a rapid increase
January 2009 to find out the extent of banking services and financial in the post-liberalisation period.
inclusion policies adopted by different banks (public, private and foreign 9 IMF, Impact of the global financial crisis on Sub-Saharan Africa, 2009
banks) to different class of customers. 10 Director of Madhyam, New Dehli
By: Kavaljit Singh (Madhyam) &
Myriam Vander Stichele (SOMO)
Editor: Elise Reynolds
Design: Annelies Vlasblom
Layout: Frans Schupp
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