The Reserve Bank of India (RBI) and the International Financial Services Centres Authority (IFSCA) are soon expected to come up with guidelines aimed at making IFSC GIFT City more competitive vis-à-vis other financial centres, such as London and Singapore, and relatively attractive as a platform for investment in India.
These guidelines, expected to be out in a month, will be for permitting acquisition financing by IFSC banking units of foreign banks and recognising offshore derivative instruments as valid contracts. These were some of the IFSC-related announcements made in the recent Union Budget by Finance Minister Nirmala Sitharaman.
She also announced amendments to the IFSCA Act to avoid dual regulations and eliminate the need for multiple clearances for banks and other financial institutions looking to set up branches in GIFT City.
“The idea for foreign banks, which set up offices in GIFT City, is to access the pool of capital outside. Acquisition financing is at a very nascent stage in the Indian markets and that is something many financial institutions want to get into,” said a senior government official.
The official said the guidelines for acquisition financing and allowing offshore derivative instrument trading will be liberal when compared with that for the domestic financial system, as IFSC GIFT City is a ‘regulatory sandbox’.
“The challenge was to convince the RBI to allow a more liberalised environment in acquisition financing if foreign banks are willing to take that risk, and there is a certain amount of risk in this sector in terms of capital exposure,” the person said.
On offshore derivative instruments, the official said this was one area where IFSC GIFT City is losing the market to other financial centres.
The finance minister has announced ways to make regulations and clearances for GIFT City streamlined. She said that powers under the SEZ Act will be delegated to IFSCA and the IFSCA Act itself will be amended for statutory provisions for arbitration, ancillary services, and avoiding dual regulation under the SEZ Act. This is a legal requirement and the changes will be made under the 2023 Finance Bill.
According to the Finance Bill, the Income Tax Act and the Securities Contracts (Regulation) Act will also be amended to get rid of dual regulation and oversight for companies setting up business branches in GIFT City.
Sitharaman also announced the “setting up a single window IT system for registration and approval from IFSCA, SEZ authorities, GST Network, RBI, Securities and Exchange Board of India and Insurance Development Regulatory Authority of India”.