Indian banks are opening branches in Pakistan and vice versa as financial institutions seek to capitalise on the two countries' recent trade pact.

More letters of credit (L/Cs) and bank guarantees are expected to flow to and from Pakistan and India as each country's central banks approve branch openings for commercial banks to operate in the neighbouring country.

Bank approvals

The State Bank of Pakistan has said that the National Bank of Pakistan (NBP) and the United Bank Limited (UBL) can open branches in India.

The Reserve Bank of India is expected to soon finalise the names of two Indian banks that would be granted approval to enter into Pakistan's financial market.

New channels

Opening up new banking channels in each other's countries was one of the main features of the trade agreement signed in February 2012 by Pakistan and India.

The representatives of the central banks of both countries still have to meet and finalise aspects of the institutional framework so that an effective network of Indian and Pakistani banks develops across both countries.

Applications

Several more banks in each country are said to have applied to their central bank for permission to operate in the neighbouring country.

A key aim of the trade pact is to boost trade finance flows between the two countries and increase the amount of L/C and bank guarantee business between India and Pakistan.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.