Fema Changes To Pave Way For Offshore Banking Units

New Delhi, October 22: | Updated: Oct 23 2002, 05:30am hrs
The government is expected to make some changes in Foreign Exchange Management Act (Fema) rules shortly to facilitate framing of Reserve Bank of India (RBI) guidelines for offshore banking units (OBUs) in special economic zones (SEZs).

Authoritative sources in the government told FE that certain provisions in the Fema rules were proving a hindrance in the norms for OBUs. The exact nature of these provisions, though could not be ascertained.

Once the glitches were smoothened, the apex bank would move ahead with the guidelines. After they are put in place, it would be in a position to invite applications from banks willing to set up branches in SEZs.

The sources clarified that banks would be given approval on a case-to-case basis because they have to be granted exemption from cash reserve ratio (CRR) and statutory liquidity ratio (SLR) norms. This is not possible across the board as it would necessitate amendments to the RBI and Banking Regulations Acts.

Since the process was bound to be time-consuming, the finance ministry had decided that applications could be treated on stand-alone basis.

It is understood that a number of banks in the private and public sectors are keen on getting into the scheme, as also some foreign banks. OBUs would be treated like foreign branches of Indian banks and to that extent be entitled to exemption from SLR/CRR requirements. However, by virtue of location in SEZs, they would be able to access and lend credit at international rates.

The OBU concept was unveiled as part of the Exim policy 2002-07.