Giving a boost to the government’s intiative to set up Gujarat International Finance Tec-City (GIFT), the Reserve Bank of India released norms that would enable banks to set up shops in the centre.
The RBI said those banks that act as authorised dealers of foreign currency are eligible to set up international business units (IBU) in GIFT.
Banks will have to take an approval from RBI to set up an IBU and will have to infuse $20 million as initial minimum capital. The IBU would be exempt from cash reserve ratio and statutory liquidity ratio, the RBI said. However, they would not be eligible for deposit insurance, the central bank said.
“The sources for raising funds, including borrowing in foreign currency, will be persons not resident in India and deployment of the funds can be with both persons resident in India and not resident in India,” RBI said in a notice on Wednesday.
IBUs can undertake transactions with non-resident entities other than individual or retail customers or high networth individuals. The transactions can only be in foreign currency and not in the rupee, the RBI said. The IBU can also take transactions for wholly owned subsidiaries and even joint ventures of Indian companies registered abroad.
IBUs will be allowed to take deposits of more than one year in foreign currency, said RBI.
“They can, however, raise short term liabilities from banks subject to limits as prescribed by RBI,” it added. IBUs are barred from opening current and savings accounts and cannot issue bearer instruments or cheques.
IBUs are permitted to undertake factoring and forfaiting of export receivables. IBUs are also permitted to undertake transactions in all types of derivatives and structured products with the prior approval of the board of directors, said RBI. IBUs dealing with such products should have adequate knowledge, understanding, and risk management capability for handling such products.
As any other bank, even IBUs will adhere to prudential norms set out by RBI and the board of the bank will have to specify an appropriate credit-risk management policy. IBUs will be required to adopt liquidity and interest rate risk management policies prescribed by the RBI and function within the overall risk management and framework of the bank subject to monitoring by the board, the RBI said.
Further, the loans of IBUs will not be considered in calculation of the net bank credit for priority sector lending norms purposes.