RBI
has formulated a scheme for the setting up of IFSC Banking Units (IBUs) by
banks in International Financial Services Centres (IFSCs). You may be aware
that Government of India has already announced setting up of an IFSC in Gujarat
namely Gujarat International Finance Tec-City (GIFT) in Gandhinagar, Gujarat.
The guidelines contained in this circular will be applicable to IBUs set up in
GIFT as well as in other IFSCs which may be set up in India.
Eligibility
criteria
Indian
banks authorised to deal in foreign exchange will be eligible to set up IBUs.
Each of the eligible banks would be permitted to establish only one IBU in each
IFSC.
Licensing
Eligible
banks interested in setting up IBUs will be required to obtain prior permission
of the RBI. For most regulatory purposes, an IBU will be treated on par with a
foreign branch of an Indian bank.
Capital
The
parent bank will provide a minimum capital of US$ 20 million or equivalent in
any foreign currency to its IBU. The IBU should maintain the minimum prescribed
regulatory capital on an on-going basis.
Reserve
requirements
The
liabilities of the IBU are exempt from both CRR and SLR.
Funds
will be raised from persons not resident in India and can be deployed with both
residents as well not residents subject to the provisions of FEMA, 1999.
Permissible
activities of IBUs
The
IBUs will be permitted to engage in the form of business as per the BR Act as
given below, subject to the conditions of the licence.
i.
IBUs
can undertake transactions with non-resident entities other than individual /
retail customers / HNIs.
ii.
All
transactions of IBUs shall be in currency other than INR.
iii. IBUs can deal
with the Wholly Owned Subsidiaries / Joint Ventures of Indian companies
registered abroad.
iv. IBUs are allowed to have liabilities with
original maturity period of more than one year only. They can, however raise
short term liabilities subject to limits prescribed by the RBI. It has now been decided that RBI will
not prescribe any limit for raising short-term liabilities from banks. However,
the IBUs must maintain LCR as applicable to Indian banks on a stand alone basis
and strictly follow the liquidity risk management guidelines issued by RBI to
banks. Further, NSFR will also be applicable to the IBUs as and when it is
applied to Indian banks. .(Circular dt 7/1/16)
v.
IBUs are not allowed to open any current or
savings accounts. They cannot issue bearer instruments or cheques. All payment
transactions must be undertaken via bank transfers. It has now been decided that the IBUs can open
foreign currency current accounts of units operating in IFSCs and of
non-resident institutional investors to facilitate their investment
transactions.(Circular dt 7/1/16)
vi. IBUs are
permitted to undertake factoring / forfaiting of export receivables.
vii.IBUs are permitted to undertake
transactions in all types of derivatives and structured products.
Prudential
regulations
All
prudential norms applicable to overseas branches of Indian banks would apply to
IBUs.
The
IBUs would be required to adopt liquidity and interest rate risk management
policies prescribed by the RBI in respect of overseas branches of Indian banks
and function within the overall risk management and ALM framework of the bank
subject to monitoring by the board at prescribed intervals.
The
bank’s board would be required to set comprehensive overnight limits for each currency
for these Units, which would be separate from the open position limit of the
parent bank.
Anti-Money
Laundering measures
The
IBUs will be required to scrupulously follow KYC, CFT and other anti-money
laundering instructions. IBUs are prohibited from undertaking cash
transactions.
Regulation and
Supervision
The
IBUs will be regulated and supervised by the RBI of India.
Reporting
requirements
The
IBUs will be required to furnish information relating to their operations.
These may take the form of offsite reporting, audited financial statements for
IBUs, etc.
Ring fencing the
activities of IFSC Banking Units
The
IBUs would operate and maintain balance sheet only in foreign currency. They
may have a Special Rupee account out of
convertible fund to defray their administrative and statutory expenses. Such transactions
in INR would be through the Authorised Dealers (distinct from IBU). IBUs are
not allowed to participate in the domestic call, notice, term, forex, money and
other onshore markets and domestic payment systems.
The
IBUs will be required to maintain separate nostro accounts with correspondent banks,
which would be distinct from nostro accounts maintained by other branches of
the same bank.
Priority sector
lending
The
loans and advances of IBUs would not be reckoned as part of the Net Bank Credit
of the parent bank for computing priority sector lending obligations.
Deposit
insurance
Deposits
of IBUs will not be covered by deposit insurance.
Lender of Last
Resort (LOLR)
No
liquidity support or LOLR support will be available to IBUs from the RBI.
With a view to providing greater
flexibility to the IBUs in their business transactions, it has been decided
that exposure ceiling for IBUs shall be 5 percent of the parent bank’s Tier-I
capital in case of a single borrower and 10 percent of parent bank’s Tier-1
capital in the case of a borrower group. .(Circular dt 7/1/16)
Scheme for setting up of IBU by foreign banks
already having a presence in India
Eligibility
criteria
Only
foreign banks having presence in India will be eligible to set up IBU. Specific
permission from the home country regulator is required. Each of the eligible
banks will be permitted to establish only one IBU in each IFSC.
Licensing
The
banks will be required to obtain prior permission of the RBI under Section 23 of
the Banking Regulation Act.
Capital
Parent
bank would be required to provide a minimum capital of US$ 20 million or
equivalent in any currency. The IBUs should maintain the minimum prescribed
regulatory capital on an on-going basis. The parent bank will be required to
provide a Letter of Comfort for extending financial
assistance, as and when required, in the form of capital / liquidity support to
IBU.
Reserve
requirements
The
liabilities of the IBU are exempt from both CRR and SLR.
Resources and
deployment
Funds
will be raised from persons not resident in India and can be deployed with both
residents as well not residents subject to the provisions of FEMA, 1999.
Permissible
activities of IBUs
The
IBUs will be permitted to engage in the form of business mentioned in the BR
Act as given below, subject to the conditions of the licence.
i.
IBUs
can undertake transactions with non-resident entities other than individual /
retail customers / HNIs.
ii.
All
transactions of IBUs shall be in currency other than INR.
iii. IBUs can deal
with the Wholly Owned Subsidiaries / Joint Ventures of Indian companies
registered abroad.
iv.IBUs are allowed to have liabilities in
foreign currency only with original maturity period greater than one year. They
can however raise short term liabilities from banks subject to limits prescribed
by the RBI. It has now
been decided that RBI will not prescribe any limit for raising short-term
liabilities from banks. However, the IBUs must maintain LCR as applicable to
Indian banks on a stand alone basis and strictly follow the liquidity risk
management guidelines issued by RBI to banks. Further, NSFR will also be
applicable to the IBUs as and when it is applied to Indian banks. .(Circular
dt 7/1/16)
v.
IBUs
are not allowed to open any current or savings accounts. They cannot issue
bearer instruments or cheques. All payment transactions must be undertaken via
bank transfers. It has
now been decided that the IBUs can open foreign currency current accounts of
units operating in IFSCs and of non-resident institutional investors to
facilitate their investment transactions.(Circular dt 7/1/16)
vi. IBUs are
permitted to undertake factoring/forfaiting of export receivables.
vii.IBUs are permitted to undertake
transactions in all types of derivatives and structured products with the prior
approval of their Board of Directors.
Prudential
regulations
An
IBU shall adopt prudential norms as prescribed by RBI.
The
IBUs will be required to adopt liquidity and interest rate risk management
policies prescribed by the RBI and function within the overall risk management
and ALM framework of the bank subject to monitoring by the board at prescribed
intervals.
The
bank’s board would be required to set comprehensive overnight limits for each
currency for these Units, which would be separate from the open position limit
of the other branch/es of the foreign bank having a presence in India.
Anti-Money
Laundering measures
Funds
will be raised from persons not resident in India and can be deployed with both
residents as well not residents subject to the provisions of FEMA, 1999.
Regulation and
supervision
The
IBUs of foreign banks will be regulated and supervised by the RBI.
Reporting
requirements
The
IBUs will be required to furnish information relating to their operations as
prescribed from time to time by the RBI. These may take the form of offsite reporting,
audited financial statements for the IBU, etc.
The
IBUs would operate and maintain balance sheet only in foreign currency. They
may have a Special Rupee account out of
convertible fund to defray their administrative and statutory expenses. Such transactions
in INR would be through the Authorised Dealers (distinct from IBU). IBUs are
not allowed to participate in the domestic call, notice, term, forex, money and
other onshore markets and domestic payment systems.
The
IBUs will be required to maintain separate nostro accounts with correspondent banks,
which would be distinct from nostro accounts maintained by other branches of
the same bank.
Priority
sector lending
The
loans and advances of IBUs will not be reckoned as part of the Net Bank Credit
for computing priority sector lending obligations of the foreign bank in India.
Deposit
insurance
Deposits
of IBUs will not be eligible for deposit insurance in India.
Lender of Last
Resort (LOLR)
No
liquidity support or LOLR support will be available to IBUs from the RBI.
With a view to providing greater
flexibility to the IBUs in their business transactions, it has been decided
that exposure ceiling for IBUs shall be 5 percent of the parent bank’s Tier-I
capital in case of a single borrower and 10 percent of parent bank’s Tier-1
capital in the case of a borrower group. .(Circular dt 7/1/16)
Based on RBI Circular dt 01/04/15 and updated on
7/01/16. Please visit www.rbi.org.in for any further clarification
if required….. Poppy
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