Setting up of IFSC Banking Units (IBUs)

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.

Scheme for setting up of IFSC Banking Units (IBU) by Indian Banks

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.

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 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.

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 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

Non-Resident Ordinary Rupee (NRO) Account

Non-Resident Indian (NRI)

An NRI means a person resident outside India who is a citizen of India or is a person of Indian origin.

Person of Indian Origin (PIO)

PIO is a citizen of any country other than Bangladesh or Pakistan, if

(a)he at any time held Indian passport; or

(b)he or either of his parents or any of his grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act; or

(c)the person is a spouse of an Indian citizen or a person referred to in (a) or (b).

Eligibility

(a) Any person resident outside India, may open and maintain NRO account with an Authorised Dealer or an Authorised Bank for bona fide transactions in Indian Rupees.

(b)  Opening of accounts by individuals and entities of Pakistan and entities of Bangladesh requires prior approval of the RBI.

(c)  Opening of accounts by individual of Bangladesh may be allowed, subject to his holding a valid visa and valid residential permit.

Types of Accounts

Current, savings, recurring or fixed deposit. The Rate of interest and guidelines shall be in accordance with directives issued by RBI.

Joint Accounts with Residents / Non- Residents

The accounts may be held jointly with residents and non-residents.

Permissible Credits / Debits

A. Credits

(i)Remittances from abroad through normal banking channels in permitted currencies.

(ii)           Freely convertible foreign currency, tendered by the account holder during his temporary visit. Cash exceeding USD 5000 or its equivalent should be supported by currency declaration form. Rupee funds should be supported by encashment certificate, if they represent foreign exchange.

(iii)         Transfers from rupee accounts of non-resident banks.

(iv)         Legitimate dues in India. This includes income like rent, dividend, pension, interest, etc.

(v) Sale proceeds of assets acquired out of rupee or foreign currency funds or through legacy or inheritance.

(vi)         Resident individual can make a rupee gift to the NRO account of an NRI/PIO who is a close relative subject to the amount being within the overall limit prescribed under the Liberalised Remittance Scheme available for a resident individual.

(vii)       Resident individual may lend to a NRI/PIO close relative, subject to the amount being within the overall limit prescribed under the Liberalised Remittance Scheme available for a resident individual;

B. Debits

(i) All local payments in rupees including payments for investments in India.

(ii)           Remittance of current income like rent, dividend, pension, interest, etc. outside India.

(iii)         Remittance up to USD one million, per financial year (April- March).

(iv)         Transfer to his NRE account within the overall ceiling of USD one million per financial year.

Remittance of Assets

A citizen of a foreign state, not being a citizen of Nepal or Bhutan or a Person of Indian Origin (PIO), who –

(i)has retired from an employment in India, or

(ii)           has inherited assets; or

(iii)         is a widow resident outside India and has inherited assets of her deceased husband who was an Indian citizen resident in India,

may remit an amount, not exceeding USD one million per financial year, on production of documentary evidence in support of his ownership.

Foreign nationals of non-Indian origin on a visit to India

NRO account can be opened by a foreign national of non-Indian origin visiting India, with funds remitted from outside India. The balance may be converted into foreign currency and paid to him at the time of his departure from India. The account should not be more than six months old and there should be not credit of local funds, other than interest accrued.

For accounts more than six months old, applications has to be made by the account holder to RBI.

Grant of loans / overdrafts by the Authorised Bank to account holders and third parties

(a) Loans to non-resident account holders and third parties may be granted in Rupees against the security of fixed deposits subject to the following conditions:

(i) The loan shall be only for borrower's personal and business needs and not for agricultural or real estate activities or for re-lending.

(ii)           Regulations relating to margin and rate of interest shall be complied with.

(iii) The usual norms as applicable in the case of advances to trade/industry shall be applicable for such facilities granted to third parties.

(b) Authorised Dealer may permit overdraft subject to their commercial judgement and other directives.

Change of residential status of account holder

(a) From Resident to Non-resident

(i)When a resident leaves India for a country (other than Nepal or Bhutan) for taking up employment, business, vocation or for any other purpose indicating his intention to stay outside India for an uncertain period, his existing account should be designated as a Non- Resident (Ordinary) Account.

(ii)           Foreign nationals who become residents and are eligible to hold a resident savings bank account are permitted to re-designate their resident account as NRO account on leaving the country to enable them to receive their legitimate dues.

(b) From Non- resident to Resident

NRO accounts may be re-designated as resident Rupee accounts on return to India for taking up employment, business, vocation or for any other purpose indicating his intention to stay in India for an uncertain period. Where the account holder is only on a temporary visit to India, the account should continue to be treated as non-resident during such visit.

Treatment of loans /overdrafts in the event of change in the residential status of the borrower

Where a person has availed a loan while residing in India and subsequently becomes a non resident, the Authorised Dealer may allow continuance of the facilities at their discretion. In such cases, repayment may be made by inward remittance or out of his resources in India.

Payment of funds to Non-resident nominee

The amount payable to a non-resident nominee of a NRO account shall be credited to the NRO account of the nominee with an Authorised dealer in India.

Operation of NRO account by Power of Attorney holder

Authorized Dealers may allow operations in an NRO account by a Power of Attorney holder provided such operations are restricted to:

(i)  All local payments in Rupees including payments for eligible investments; and

(ii) Remittance of the NRI’s current income in india after taxes, outside India.

(iii)  The resident Power of Attorney holder is not permitted to

·       repatriate funds other than to the non-resident himself

·       make payment by way of gift to a resident

·       transfer funds to another NRO account.

International Credit Cards

Authorised Dealer banks have been permitted to issue International Credit Cards to NRIs/PIO, without prior approval of Reserve Bank. Such transactions may be settled by inward remittance or out of balances held in the cardholder’s FCNR (B) / NRE / NRO Accounts.

Income-Tax

The remittances (net of applicable taxes) will be allowed on production of requisite information in prescribed formats. It shall be mandatory on the part of Authorised Dealers to comply with the requirement of tax laws.

System of quarterly reporting of opening of NRO accounts by individual/s of Bangladesh:

i.  The Authorised bank should put in place a system of quarterly reporting whereby each branch shall maintain a record of the accounts opened by Bangladeshi nationals and details of such account shall be forwarded to their Head Office which shall report to the Under Secretary (Foreigners), Ministry of Home Affairs, on quarterly basis.

ii. The report shall contain Name, Date of arrival in India, Passport No. and Place/Country of issue, Residential permit reference and date and place of issue, Name of the FRO/ FRRO concerned and the Complete address and contact number of the branch where the bank account is being maintained.

Based on RBI Master Circular dt 01/07/15. Please visit www.rbi.org.in for any further clarification if required…..     Poppy