KARACHI, Nov 7: Pakistan and India have agreed to open up banking sector and allowed establishing of two bank branches on reciprocal basis after a gap of 40 years. In this regard an understanding has already been reached between the Reserve Bank of India (RBI) and the State Bank of Pakistan (SBP) on granting permission for opening of bank branches, the SBP announced in a press release on Monday.

The central bank said that there was a growing pressure from the business community to open banking link between the two countries having vast potential to boost export and import.

“The specific banks to be permitted to open the branches would be mutually agreed upon by the RBI and the SBP keeping in view their respective regulatory policies and procedures,” the release said.

The licensing of subsequent or additional branches of the banks would be decided by RBI and SBP as per their policy and licensing norms applicable to foreign banks from time to time.

The official trade between the two countries remained around $1 billion but trade through third country, as estimated by business community, was more than $3 billion annually.

Recently a number of trade delegations from both the countries visited each country and signed a number of trade agreements. Indian business delegations have been saying that the two countries could boost their trade volume up to $10 billion in just five year.

Before 1965 war, banks from both the countries were operational but after the war the link was cut off. Pakistan business community believes that banking link between the two countries would provide better opportunity to increase their business with the neighbouring country. India is eager to open as much as possible trade links with Pakistan which would provide it a close and big market of 150 million people. India being fastest growing economy is competing with China in the international market and the competition has drastically cut the products’ prices world over.

Many local businessmen do not favour direct trade links with India saying that India would gobble Pakistani manufacturing sector as China is doing in United States and Europe. Indian giant manufacturing sector would cripple the weak Pakistani manufacturing and production sector with cheaper products.

India is the second largest software exporter of the world which might feed Pakistani markets and meet the growing demand of technology based products.

“Opening of banking business does not mean that trade would take a sharp jump, however, it would work as good catalyst,” said a banker.

He said that the online banking would make it extremely easy for the traders to do business with the neighbouring country.

Banking sources said that initially National Bank of Pakistan and Habib Bank have shown their interest to open their branches in New Delhi and Mumbai.

RBI Governor Dr Y.V. Reddy visited Karachi on May 18, 2005. SBP Governor Dr Ishrat Husain reciprocated by visiting Mumbai on October 8, 2005.