CECA pact with Singapore gets nod

The Cabinet, scheduled to meet this week, will finalise the details of the Comprehensive Economic Co-operation Agreement with Singapore.

It will include binding the foreign direct investment limit in banking at 74 per cent under the bilateral trade pact.

As per the proposal circulated for the meeting, three banks from Singapore are expected to be allowed to open 15 branches in India over a period of five years, with the option to open all the branches in the first year itself.

The Reserve Bank of India is, however, in favour of allowing the three banks to open three branches annually over a period of five years. Officials said Prime Minister Manmohan Singh had favoured the first option.

Relaxing norms for mutual funds investing in Indian equities are also proposed. The CECA will be signed next month during Singapore Prime Minister Lee Hsien Loong's visit to India.

The RBI has, however, turned down proposals to either allow trading in Indian shares on Singapore bourses, or to permit an Indian stock exchange branch to deal in Singapore stocks. Some flexibilities under the Indian depository receipts are expected in the CECA.

The fate of the Double Taxation Avoidance Agreement between the two countries will also be decided by the Cabinet.

Singapore has sought that the CECA be tailored on the lines of the Mauritius Treaty, but it is not willing to share information about the companies availing of benefits under the agreement.

Issues related to the financial sector were still undecided because the RBI had not given them a go-ahead, officials told Business Standard. RBI's comments were sent to the government on Tuesday.

The RBI agreed to 74 per cent FDI in banking. But, it has said that restrictions be placed so that the Singapore banks can acquire stakes in weak banks identified by it.

As per a recent policy, foreign investors can acquire stakes only in weak private banks till 2009.

The CECA with Singapore has been referred to the Cabinet at the behest of the commerce department, which was keen on ironing out the differences among government departments at the earliest.