Indian banks may soon be allowed to open new branches in the US, Vinod Rai, special secretary (financial sector) in the Ministry of Finance, told Prashant K Sahu in an interview. Excerpts:

On talks with the US on allowing Indian banks to open new branches

Branch licensing (process) for Indian banks is rather slow in the US. But we have taken this up with the US regulator.

They sought some clarifications about anti-money laundering measures that we take. We have provided them the details and are hoping that Indian public sector and private sector banks will be given licences to open new branches in the US very soon.

Banking and insurance sectors are disappointed with Budget 2007-08. What is your view?

We should not relate Budget proposals only to taxation. Unfortunately, the tendency is to relate the Budget to tax exemptions, relief, etc. This time, the banking sector has been given a lot of other facilities.

Regional rural banks have been given some provisions, the India Infrastructure Finance Company Limited has been allowed to set up subsidiaries abroad, and there is an attempt to get new insurance schemes started.

There is a very substantial initiative on agriculture insurance and most importantly, for the first time, we are taking care of the social security of roughly 10 million households who are in the unorganised sector.

Will hardening interest rates and the recent hike in the cash reserve ratio affect profitability of banks?

No. The fact that banks in general and public sector banks in particular are diversifying into insurance and fee-based activities, gives them greater scope to boost their profits.

Even if there is any possibility of profits not rising at the expected rate due to the hardening of interest rates, this can be made up by other sectors.

How and when will the SBI share transfer take place?

The transfer has been programmed in between the second and the third quarter (around June-July) of the current calendar year.

The government will pay the Reserve Bank of India, which will repay that amount to the government in the form of dividend from the profit it makes from this transaction.

Is there any plan to recapitalise the ailing regional rural banks?

Most RRBs which had negative networth, have been merged into larger RRBs, who have greater coverage and will be able to do business in a larger area.

Considering that RRBs have got fresh impetus through sponsored banks, we find that the number of RRBs who will need recapitalisation will be less than half-a-dozen. The sponsored banks would be able to take care of these.