To help set up India's first International Financial Services Centre (IFSC) in Gujarat's GIFT City, the RBI today relaxed norms and mandatory reserve requirements for Indian and foreign banks to set shop there.
The banking units within the IFSC will be able to transact with non-resident entities, other than individual, retail customers, or HNIs, while all transactions of IBUs would need be done in non-rupee currencies.
Issuing operational guidelines, RBI said IBUs (IFSC Banking Units) will be exempted from liabilities of both cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements.
The parent bank will be required to provide a minimum capital of USD 20 million or equivalent in any foreign currency to its IBU.
RBI further said only those foreign banks which are present in India would be allowed to set up unit at IFSC, RBI added.
"Indian banks viz. Banks in the public sector and the private sector 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.
"For most regulatory purposes, an IBU will be treated on par with a foreign branch of an Indian bank," RBI said in a notification.
IBUs can raise funds, including borrowing in foreign currency, from persons not resident in India. However, deployment of funds can be for both persons resident in India as well as persons not resident in India.
RBI further said IBUs will come under all prudential norms applicable to overseas branches of Indian banks.
"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 Anti-Money Laundering (ALM) framework of the bank," RBI said.
IBUs will be regulated and supervised by RBI.
RBI said 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 and deposits of IBUs will not be covered by deposit insurance.
For foreign banks, setting up an IBU will not be treated as a normal branch expansion plan in India and therefore, specific permission from the home country regulator for setting up of an IBU will be required.
In his Budget speech, Finance Minister Arun Jaitley had said that GIFT in Gujarat was envisaged as international finance centre that "would actually become as good" an international finance centre as Singapore or Dubai, which, incidentally, are largely manned by Indians.
"The proposal has languished for years. I am glad to announce that the first phase of GIFT will soon become a reality," he had said.
