IBUs to be treated as foreign branches of Indian banks

NEW DELHI: International Financial Services Centre ( IFSC) Banking Units, to be set up at Gandhinagar, will be treated on par with foreign branches of Indian banks.

The parent bank would be required to provide a minimum of $20 million upfront as capital, and the IFSC Banking Unit (IBU) shall have to maintain minimum capital on an on-going basis as may be prescribed, Finance Ministry said in a statement.

"For most purposes, the IBU will be treated on par with a foreign branch of an Indian bank," it said.

The IFSC is set up as a part of a Special Economic Zone (SEZ) and to operationalise this a notification under the Foreign Exchange Management Act, 1999 ( FEMA) would be issued by the RBI in March, making regulations relating to financial institutions set up in the IFSC.

"The key features of these regulations will be that any financial institution (or its branch) set up in the IFSC,- shall be treated as a non-resident Indian located outside India, shall conduct business in such foreign currency and with such entities, whether resident or non-resident, as the Regulatory Authority may determine," it added.

The IFSC in India is on the lines of Singapore and Dubai. According to an industry expert, creation of the IFSC would have a direct effect on the Indian economy through increased business growth leading to the creation of employment opportunities and significant contribution to India's GDP.

It said that the Securities and Exchange Board of India (SEBI) would allow setting up of exchanges and other activities for fund raising, merchant banking, brokerage, fund management, private equity.

"Activities like currency derivatives, NIFTY futures, Depository Receipts, etc. would take place on the exchanges like any other IFSC," it said.

The bank's board, it added, would set comprehensive overnight limits for each currency for IBUs, may set out appropriate credit risk management policy and exposure limits, and monitor overall risk management and ALM framework of the IBU.