Habib Bank along with state-run National Bank of Pakistan had applied to RBI, India's banking regulator, for starting operations in India, while SBI, PNB and Bank of India had sought appoval for going to Pakistan.
Switzerland-based Aga Khan Fund for Economic Development, which holds 51 per cent in Habib Bank, is also a promoter of Development Credit Bank in India. Its holding in DCB will come down to 31 per cent from 57.47 per cent after its equity dilution in the ongoing IPO by the bank.
RBI's cross holding norms do not allow private sector banks to hold more than 5 per cent stake in another bank, which is the reason why Habib Bank is not being allowed to enter India, Finance Ministry sources told PTI.
It's only a regulatory issue that does not permit Habib Bank to start operations in India, they said. Initially, only National Bank of Pakistan is likely to be allowed to enter India, and as such either SBI or PNB will be permitted entry into Pakistan on a reciprocal basis, the sources said.
First of all, it would be seen how the National Bank of Pakistan operates in the country before allowing any other banking entity into India, they said.
However, so far a proposal on allowing NBP has not come to the finance ministry and is pending with RBI only, they added.
