Rules eased for bank units in special finance centres

As part of a larger policy move to align India’s financial markets with international standards and to clamp down on the diversion of Indian rupee denominated business to offshore locations such as Singapore and Dubai, the Ministry of Finance issued a concept paper in February 2015 on establishing finance special economic zones (SEZs). The finance SEZs would have more liberal financial laws and a more efficient financial system than elsewhere in India. The government also perceived that, akin to Hong Kong, finance SEZs would act as conduit for funds for Indian companies and as a platform for trading of securities of Indian companies.

The 2015-16 budget announced the establishment of the Gujarat International Finance Tec-City and that appropriate regulations would be issued by the relevant regulators. This was followed by the issuance of regulations by the Reserve Bank of India (RBI), the Securities and Exchange Board of India and the Insurance Regulatory and Development Authority of India.

The RBI issued the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015, on 2 March 2015 and a notification on the establishment of international banking units (IBUs) in international financial services centres (IFSCs) on 1 April 2015. The notification permits both private sector and public sector Indian banks as well as foreign banks with a presence in India to establish an IBU in an IFSC. Such banks are permitted to establish only one IBU in each IFSC.