India-EU FTA Talks: A New Chapter in Financial Services
The financial landscape between India and the European Union (EU) is about to transform significantly. In a recent round of negotiations, India and the EU have finalised the financial services chapter under the India-EU Free Trade Agreement (FTA). This development not only marks a milestone in their bilateral relationship but also paves the way for a closer integration between the two financial systems.
Setting Up a Framework for Bilateral Cooperation
The outcome of the negotiations is an institutional and regulatory framework designed to support bilateral cooperation. The framework is aimed at improving market access and enabling a deeper integration between the Indian and EU financial systems. The talks conclude amid robust services trade between the two regions, with the total services trade amounting to around $83bn in 2024.
India exported approximately $700m worth of financial services to the EU in 2024, while it imported financial services worth around $600m from the bloc in the same year. This mutual exchange of services underscores the potential for collaboration and growth in this sector.
Greater Scope Than Standard GATS Commitments
The financial services annex of the agreement includes 16 articles, which the parties affirm go beyond standard General Agreement on Trade in Services (GATS) commitments. India and the EU have committed to cooperate on electronic payments and real-time transaction infrastructure, covering interoperability and the interlinking of payment systems. The agreement seeks to improve cross-border payments for various use cases, including remittances, merchant payments, and other transfers.
Fintech Cooperation and Market Access Enhancements
Another crucial aspect of the agreement is the commitment to fintech cooperation. India and the EU plan to work together on “innovative” financial services, such as supervisory technology (SupTech), regulatory technology (RegTech), and central bank digital currency (CBDC). This collaboration aims to foster innovation and advancement in the financial technology sector.
The agreement also includes provisions to address discriminatory treatment in credit assessment and broader market operations. The goal is to ensure parity with domestic institutions in the EU market and support market access for Indian financial institutions and other financial service suppliers.
Banking, Insurance and Other Financial Services
The schedules of specific commitments cover market access and national treatment in banking, insurance, and other financial services segments. India’s offers reference recent policy settings, including 100% foreign direct investment (FDI) in insurance and an FDI limit of 74% in banking.
Regarding branch expansion, the framework includes a licencing approach that allows up to 15 bank branches to be established over a four-year period, compared with a previously offered limit of 12 branches under GATS-based commitments. This expanded limit is a testament to the growing financial integration between the two regions.
Current Market Presence
Three Indian banks currently operate in the EU – State Bank of India, Bank of Baroda, and Bank of India, with five branches in total. On the EU side, five banks operate in India with 33 branches, and 17 EU banks maintain representative offices in India. The increased presence of financial institutions from both regions in each other’s markets is a clear indicator of the strengthening financial ties.
In conclusion, the agreement between India and the EU signifies both governments’ commitment to deepening economic ties and capitalising on mutual opportunities in the rapidly evolving financial services landscape. The forward-looking and balanced agreement is designed to provide enhanced market access, regulatory clarity, and cooperative frameworks that will benefit financial institutions and service providers from both countries, as stated by India’s Ministry of Finance. This is indeed a remarkable development in the global financial sphere.
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