Speech by The Commercial Secretary to the Treasury.
The UK and India: a partnership in financial services
Thank you Dr Mallya.
Ladies and Gentlemen, it is particularly good to be here at the FICCI / IBA conference as UK-Indian finance and trade is very much in my blood.
It is here in Mumbai that my family lived in the 19th Century.
In those days the Sassoons were merchants and bankers, trading across much of Asia.
In 1858 my great-great-grandfather set out from here to London, to open the first branch of our family business outside Asia.
To take advantage of the London capital markets, already the world’s most global, and of trade opportunities with the UK - then particularly in cotton.
So I know from my family history of the opportunities the UK has presented to Indian business for over 150 years. And of the close ties between our countries. Close ties that the UK Government wants to see enhanced.
So it’s a real pleasure to be back in Mumbai, and a great honour to be the first UK Minister to address the FICCI / IBA annual banking conference.
A symbol - I’m sure you’ll agree - of the strengthening relationship between our two nations.
A relationship that is based on our shared interests, values, and growing personal and business ties.
I want to talk today about three key ingredients which I feel are necessary to enhance this economic relationship.
They are, first, a strengthening of the links that exist between the banking and financial sectors of our two countries.
Second, the need to strike the right regulatory balance in response to the global economic crisis.
And third, the requirement to modernise international financial institutions to reflect the emergence of India as a world economic power.
I’ll say a few words on each of these.
Starting with the strong links between our banking and finance sectors.
Since coming to office in May, the new UK government has made some key changes to our international priorities.
We have said that we are determined to enhance our relationship with India.
And we have agreed that openness to trade and investment must be at the heart of this relationship.
Leading financiers from around the world have consistently said that it is easier as a foreign bank or insurer to open a branch or subsidiary in the UK than in any other developed nation - including the US.
This is demonstrated by the fact that the UK is host to more Indian banks than any other foreign nation - with nine separate companies operating branches across the UK.
And when the Chancellor of the Exchequer, George Osborne, was here in July, he announced that Exim Bank - India’s premier development bank for trade and investment - is soon to be number ten.
India’s Infrastructure Finance Company has chosen to base itself in London. Using London’s capital to help drive India’s progress - a move that illustrates the depth of our financial services relationship.
I would like to see Indian banks establish themselves even more prominently across the UK - and basing international businesses out of the UK. And of course it was very good to be introduced by Dr Mallya because I understand that Bank of Baroda have been in the UK for over 50 years. And I believe there are at least another ten Indian banks and even more financial sector players who are currently considering expanding into the UK.
So I am delighted to launch the UK Trade and Investment/Deloitte Guide to Setting up a Financial Services Firm in the UK - which has been produced exclusively for Indian banks and financial firms something we haven’t done in any other part of the world.
We won’t, sadly, get to the position of 150 years ago when my great-great grandfather set up a bank branch within a month of arriving in the UK. But we will do our best to make the process in 2010 as clear, and understandable as it can be.
If any of you here today are considering growing your banks internationally, I commend this document to you as a practical guide to setting up in the UK.
The UK Trade and Investment team in India stand ready to support your business in this endeavour.
The UK remains the number one global hub for banking and financial services, and we want to attract the best of global finance to London.
For example, only last week we saw that London had strengthened its dominance of global foreign exchange. It now accounts for 37% of global currency trading with growth of 25% in the past three years - well ahead of the 20% growth in currency markets globally.
London has much to offer as a financial capital, including as a gateway to the other European markets.
I very much welcome the fact that the India Infrastructure Finance Company has chosen to base itself in London. And that State Bank of India has decided to make London their European headquarters.
ICICI Bank has used their UK subsidiary to open branches in Belgium and Germany. There is great potential for more Indian banks to make similar moves.
Yet while Indian Banks are seeing the advantages of locating in the UK, I should also highlight that our relationship works both ways.
UK banks have been in India for over 150 years. And so, reciprocity is already a key feature of our relationship. I would like to see it go further.
For example, in the same way that the UK allows Indian-owned subsidiaries the same freedom as UK banks to open branches, I hope the RBI move in a similar direction later this month.
But this is not just about reciprocity, it is about the economic benefits to stable growth and inclusion that come with free and open competition.
The UK has three of the top four foreign banks in India.
Given licences in smaller towns and cities, I’m sure that they, and others, would seize the opportunity to bring modern banking services to millions more Indian customers.
Lack of access to finance is a major barrier to poverty reduction all over world.
The UK’s banks are fully committed to India’s financial inclusion agenda and to the challenges of serving poorer communities across more rural areas. In his speech this morning, Mr O P Bhatt talked about technology and financial inclusion. When the Chancellor of the Exchequer was here in July he launched Vodafone’s solar powered mobile phone, Monitise’s software platform for mobile phone banking and Standard Chartered bank’s mobile ATM. So I believe the UK and India have a strong emerging partnership to bring technology solutions to address financial inclusion.
We already have a vital stake in India’s rise to global power and prosperity. And this can be further developed with greater integration of our financial institutions.
Over the last decade the Indian economy has become increasingly international. And has seen tremendous benefits from the liberalisation of the financial sector.
The dynamism of India’s capital and equity markets demonstrates the potential for other parts of the financial sector:
- such as in insurance, where I welcome India’s commitment to raise the cap on foreign investment from 26% to 49%;
- and in banking, through the implementation of the reforms set out in the RBI’s Roadmap.
I want India and the UK to create a partnership in banking that is strong and lasting - one that encourages closer ties between our two economies.
India’s model for managing macro-prudential risks enabled it to weather the recent economic storm far better than the UK, and many other economies.
Your financial system is an example to the world - demonstrating why attention to macro-prudential risks is of pre-eminent importance.
There are certainly lessons the UK can learn from India’s approach to financial regulation. I know that the Chancellor is looking forward to discussing such matters at the next Economic and Financial Dialogue.
In the UK we are consulting on a new approach to financial regulation, including:
- having a stronger focus on macro-prudential risks to the financial system as a whole;
- stronger regulation of individual firms by the Bank of England;
- and enhanced customer protection.
It is essential that we learn the lessons of the crisis, so that we have banking systems that support our economies, not put them at risk.
Where the growing interdependencies between our financial institutions are a cause for celebration, not concern.
The most important challenge we now face is to strike the right balance in our regulatory response to the crisis.
Both our countries acknowledge the power of free markets to serve the economy. But we also recognise that the self-serving nature of these markets can leave households and businesses bearing the costs of high-risk strategies.
Hindsight shows that the financial system in the developed world was skewed in favour of excessive risk taking. We must bring this back to balance.
However, we will be doing the real economy no service at all if we stifle innovation and lending through overly prescriptive regulation. Disproportionate or overbearing regulation imposes costs on firms that are passed on to users - either through higher charges and lower returns, or through a reduction in choice and competition.
There is a delicate balance to be struck, but one the UK is committed to getting right both at home and abroad.
In the UK there is a tension between our domestic responsibilities and the global role that businesses in London play.
Geography might suggest that Britain is an island, but in terms of financial services we are inseparably connected to all nations - including India.
If you walk down a high street in the UK you can as easily walk into your local branch of a foreign owned bank as you can to walk into Lloyds or RBS.
In the City, Deutsche Bank, BNP Paribas and JP Morgan jostle for business alongside Barclays Capital, Rothschilds, Standard Chartered and HSBC.
We need regulatory frameworks at global, regional and national levels that respond to the challenges that an interconnected financial system presents.
We need to work together to develop regulatory frameworks that work for both our nations - that help strengthen our ties.
And the UK sees the G20 as playing a major part in shaping the global regulatory response.
In the last ten years India has emerged as a major economic power.
In a world where relative economic strength is shifting eastwards, it is vital that we see a modernisation of our international financial institutions.
India now plays an integral role in banking and financial multilateralism; a role that it didn’t have for much of the post-war period.
The post-1945 system of international finance needs to change.
It was built for a world of closed economies and just 50 states.
We need a new global financial architecture.
One that rightfully reflects the emergence of India and other economies as essential to the dynamics of globalisation.
Having acted as President of the Financial Action Task Force in 2007/08 - and worked on India’s potential membership with your then Finance Minister Chidambaram and Governor Subbarao when he was Finance Secretary - I was personally very pleased to see India join the FATF in June of this year.
The G20’s emergence as the leading global grouping is a development that the UK Government welcomes.
We want to see the G20 create a global order that is supportive of our mutual aspirations by:
- coordinating macroeconomic policies and agreeing actions in each G20 country to ensure sustainability and foster global growth;
- implementing reforms to strengthen the global financial system, in particular improving the quality and quantity of capital;
- and resisting protectionism and promoting open markets.
India should play a significant part in these debates, a role to which it is entitled because of the size, scope and potential of its economy. So it was good to be reminded this morning by Governor Subbarao about the role India is playing in the Basle process.
India - and its financial sector - is moving with the times. We now require our international institutions to catch-up.
Let me conclude by observing that India’s policies of banking and investment liberalism are reintegrating India into the world economy. This is a wholly positive development.
The UK Government is determined to do all it can to be a partner in India’s future achievements.
To build closer ties between our economies.
To strengthen the links that exist between our financial sectors.
And begin a new chapter in our nations’ long history. One structured around mutual understanding, collective ambition, and shared success.