The internal security establishment’s over-enthusiasm in claiming that Indian financial institutions are vulnerable to terrorist groups has come back to haunt the Government: six applications from Indian banks, including SBI and ICICI seeking permission to open branches in the US, are pending with the US Treasury department.

Government sources said delay in granting permission figured in a meeting between Finance Minister P. Chidambaram and his US counterpart Henry Paulson in New York last month. In fact, Chidambaram told the US team that India would have to review its policy if Indian banks aren’t allowed to open branches in the US.

While there are 52 branches of US banks in India, including 19 opened in the past four years — four branches of US banks have been approved in Tier II cities this year — Indian banks have just around a dozen branches in the US. The issue will figure again when Paulson comes to Mumbai for an infrastructure conference on October 29-30.

The Americans are said to have underlined strict terms of the federal regulator on branches for foreign banks after 9/11. But Chidambaram emphasized that Indian Banks were Basel II (international standard to safeguard solvency and market risks) compliant and the Money Laundering Act was in place to guard against any questionable transfers.