India and New Zealand Forge Ahead with Financial Services FTA: What It Means for Both Economies

Significant Progress in Financial Services Agreement

New Delhi: The negotiations between India and New Zealand regarding the Financial Services Annex of their Free Trade Agreement (FTA) have reached a successful conclusion, as announced by the Finance Ministry on Tuesday. This development is a crucial step towards enhancing economic and strategic ties between the two nations.

The Financial Services Annex represents a significant upgrade over the typical commitments outlined in the General Agreement on Trade in Services (GATS), comprising a total of 18 articles.

This forward-thinking agreement aims to bolster cooperation in financial services, introducing innovative elements related to digital payments, fintech, data transfer, and back-office services, with the potential to position India as a leading fintech hub.

At present, only two Indian banks, namely Bank of Baroda and Bank of India, operate in New Zealand, with a total of four branches. Conversely, New Zealand lacks any banking or insurance representation in India. This agreement is expected to act as a catalyst for expanding India's financial services footprint in New Zealand and inviting New Zealand financial entities into India's vibrant financial market.

The Financial Services Annex outlines a commitment from both countries to work together on enhancing domestic payment interoperability and facilitating real-time cross-border remittances and merchant payments through integrated Fast Payment Systems (FPS).

This initiative will directly enhance India's digital payments landscape and fintech sector, improve remittance flows from the Indian diaspora, create new market opportunities for Indian payment service providers, and leverage India's technological strengths in digital payment systems like UPI and NPCI.

Additionally, both nations have pledged to intensify their collaborative efforts in financial services innovation. The agreement includes provisions for mutual learning from each other's Regulatory Sandbox and Digital Sandbox frameworks for cross-border applications.

These measures position India as a fintech hub within this bilateral partnership, fostering knowledge exchange and regulatory learning with a developed economy, while also creating collaboration opportunities for Indian fintech firms and supporting India's regulatory sandbox initiatives.

India and New Zealand acknowledge each other's rights to uphold legislative and regulatory standards regarding the transfer, processing, and storage of financial data, aiming to facilitate cross-border digital operations for financial service providers while ensuring regulatory control over data sovereignty and consumer privacy.

The agreement also safeguards Indian financial institutions from arbitrary or discriminatory credit assessment practices in New Zealand, ensuring equal treatment with local institutions, facilitating market access for Indian banks, insurance firms, and other financial service providers, and preventing regulatory discrimination that could hinder Indian financial institutions' operations.

Both countries have committed to enhancing back-office and financial services support functions, leveraging India's leading capabilities in information technology and business process services. This will enable cost-effective delivery of financial services through centralized operations in India, supporting growth in India's financial services, IT, and business process outsourcing sectors.

The specific commitments outlined reflect progressive collaboration, with comprehensive agreements on Market Access and National Treatment in key banking and insurance sectors. India's sectoral offers indicate a forward-looking liberalization approach, featuring increased Foreign Direct Investment (FDI) limits in banking and insurance, along with a liberalized bank branch licensing framework allowing for the establishment of up to 15 bank branches over four years.

This marks a significant increase from the previous GATS limit of 12 branches. These offers will empower Indian financial service providers to expand their operations into New Zealand, enhancing India's position in financial services exports and fostering progressive sectoral growth. They also strategically position New Zealand's financial institutions within India's dynamic and rapidly growing financial services market.