IFSC relaxation may boost trade in foreign stocks at the GIFT City

RBI removed requirement of repatriating funds lying idle in FCA accounts

The Reserve Bank of India’s (RBI’s) decision on Wednesday to relax restrictions on banks operating in the International Financial Services Centre (IFSC) related to the repatriation of idle funds in foreign currency accounts (FCA) could give a fillip to trading in foreign stocks at the GIFT City.

The RBI also removed restrictions on individuals from opening interest-earning FCA at an IFSC.

“Being able to earn interest on the FCA account shall encourage resident Indians to open an account in IFSC banking units and foster investments in stocks and other securities of overseas entities available in IFSC. The 15-day timeframe was quite stringent since it wouldn’t give one sufficient time to decide which investment instrument to opt for from the options available,” said Neha Malviya Kulkarni, chief growth officer, SuperNAV.

Last year, both the NSE and BSE had launched trading in overseas stocks at the GIFT City. This was aimed at providing relatively easy access to Indian investors who currently go through a more cumbersome process. The initiative, however, did not gain traction due to the restrictions placed on FCA accounts.

Industry players said the amendments were long awaited and would now put the GIFT City on par with other global jurisdictions.

In February 2021, the RBI allowed resident individuals to remit funds under the Liberalised Remittance Scheme (LRS) to IFSCs set up in India. However, the remittances were to be made only for investments in IFSC securities. Moreover, only a non-interest-bearing FCA was allowed in IFSCs under LRS.

“The recent RBI notification on LRS for remittance by resident individuals to the IFSC is a welcome change. The RBI has done away with the condition of repatriating any funds lying idle for a period up to 15 days from the date of its receipt in the FCAs in IFSC to the domestic INR account, with immediate effect,” said Suresh Swamy, partner, Price Waterhouse & Co.

Experts said the removal of the repatriation clause means the time period shall now revert to the 180-day rule provided in the LRS for the repatriation of unused foreign exchange to domestic INR accounts.

The NSE IFSC has launched trading in US stocks through the unsponsored depositary receipt (DR) programme. Under this, the top 25 US-based stocks – including Apple, Microsoft, Alphabet and Tesla – can be bought by domestic investors by opening an account with a broker based in the IFSC. To keep investment ticket size lower, NSE provides an option to trade in fractional quantity or value.

Investors have to use their LRS limits to buy overseas stocks via IFSC.

Under the LRS, authorised dealers were allowed to facilitate remittances by resident individuals up to $250,000 per financial year for any transactions permitted under the law.

The latest relaxations will also make it attractive for banks to mobilise liabilities at the IFSC. It will give them cheaper access to funds and, in turn, allow them to lend at more competitive rates, said an expert.