The Reserve Bank of India (RBI) on Thursday said that the overseas branches of Indian banks and those located in the International Financial Services Centres (IFSC) in India can deal in structured financial products that are not allowed by the central bank in domestic market. The Indian banks are not required to take prior approval of the RBI for dealing in such products in foreign countries, subject to some caveats.
The direction from the RBI comes amid the row between the Indian banking regulator with the European Securities Markets Authority (ESMA) over the de-recognition of Indian clearing houses, which will significantly impact the local business of European banks.
The RBI in 2014 had issued directions allowing foreign branches of Indian banks to deal in such products, but they were restricted to certain IFSCs including, New York, London, Singapore, Hong Kong, Frankfurt and Dubai. Prior to 2014, Indian banks were required to receive permission of the central bank for dealing in such securities.
“On a review, it was felt that a framework needs to be in place to allow them to undertake activities which are not specifically permitted in the Indian domestic market and also to specify the applicability of these instructions to IFSCs in India,” the central bank said.
The Indian lenders will have to make provisions such as capital adequacy, exposure norms and periodical valuation specified by the RBI while dealing in such products, and the banks should make more stringent provisions while dealing in foreign products compared to those made for local securities. The banks should seek clarification from the RBI in case the products are not covered under the current norms.
The RBI has also placed some conditions for banks to transact in such products. The Indian banks need to seek approval from the regulators of the respective country in which the branch is located and also follow the guidelines laid down by the RBI or host regulators.
The exposure to such products is to be reflected on a mark-to-market (MTM) basis in domestic balance sheets of the banks.
The banks need to seek approval of the RBI to deal in foreign financial products linked to the rupee and the overseas branches of the Indian banks cannot accept structured deposits from any Indian residents.