Thursday, 30 July 2015

Freshers Tree

RBI Guidelines on IFSC Banking Units (IBUs)

RBI Guidelines on IBUs:

Eligibility: In its guidelines, the RBI said public and sector banks authorized to deal in foreign exchange will be eligible to set up IFSC Banking Units (IBUs) in IFSCs.
Further, only foreign banks having a presence in India will be eligible to set up IBUs. This will not be treated as a normal branch expansion plan in India and therefore, specific permission from the country regulator for setting up an IBU will be required.

Eligible Indian and foreign banks will be permitted to establish only IBU in each IFSC.
For most regulatory purposes, an IBU will be treated on par with a foreign branch of an Indian bank.
The applications of foreign bank will be considered on the basis of existing guidelines for setting up branches in India subject to the additional requirement of the home country regulator/s confirmation in writing of their regulatory comfort for the bank’s presence in the IFSC.

Minimum capital: Parent bank will be required to provide a minimum capital of $20 million or equivalent in any foreign currency to enable their IFSC Banking Units (IBUs) to start operations in IFSCs. The IBUs will have to maintain the minimum prescribed regulatory capital on an on-going basis.
If a foreign bank is setting up an IBU then it will be required to provide a letter of comfort for extending financial assistance, as and when required, in the form of capital/ liquidity support.
The RBI said the liabilities of IBUs will be exempt from both cash reserve ratio and statutory liquidity ratio requirement.

For IBUs, the sources of raising funds, including borrowing in foreign currency, will be persons not resident in India.

Deployment of the funds can be with both persons resident in India as well as persons not resident in India. However, the deployment of funds with persons resident in India will be subject to the provision of Foreign Exchange Management Act.

Permissible activities of IBUs will include undertaking transactions, which will be in a currency other than the Indian rupee, with non- resident entities other than individual/ retail customers/high net worth individuals.

IBUs can deal with the wholly owned subsidiaries/ joint ventures of Indian companies registered abroad. They are permitted to undertake factoring/ forfeiting transactions of export receivables.
Short-term liabilities: These entities are allowed to have liabilities including borrowing in foreign currency only with original maturity period greater than one year. They can, however, raise short term liabilities from banks subject to limits prescribed by the RBI.

IBUs cannot open any current or savings accounts.

They cannot issue bearer instruments or cheques. All payment transactions have to be undertaken via bank transfers.

IBUs are permitted to undertake transactions in all types of derivatives and structured products with the prior approval and other onshore markets and domestic payments systems.

Prudential regulations:
When it comes to Indian banks setting up IBUs, the RBI said all prudential norms applicable to their overseas branches would apply to the IFSC banking units. Foreign banks setting up IBUs will adopt prudential norms as prescribed by RBI.

IBUs have to operate and maintain balance sheet only in foreign currency and will not be allowed to deal in Indian Rupees except for having a special Rupee account out of a convertible fund to defray their administrative and statutory expenses.

The loans and advances of IBUs will not be reckoned as part of the net bank credit of the parent bank for computing priority sector lending obligations. The RBI will neither extend liquidity support nor provide ‘lender on the last resort support to IBUs.


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