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IFSCA Approves the International Financial Services Centres Authority (Banking) Regulations, 2020

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On November 11, 2020 International Financial Services Centres Authority (IFSCA) in a meeting has approved the International Financial Services Centres Authority (Banking) Regulations, 2020.

Purpose– To lay down the rules for the various aspects of banking operations that will be acceptable at the IFSC(International Financial Services Centres).

Points to be Noted

IFSC International Retail Business Development Committee headed by Pradip Shah, Chairman of Indasia Fund Advisors Pvt Ltd. has presented its final report to IFSCA.

Aspects of International Financial Services Centres Authority (Banking) Regulations, 2020:

i.Lay down the requirements to establish IFSC Banking Units (IBUs)

ii.Permit Non-resident Indian(NRI- Person Residing Outside India)who have net worth of at least USD 1 Million, to open foreign currency accounts in any freely convertible currency at IBUs

iii.Permit Indian residents, who have net worth at least USD 1 million to open foreign currency accounts in any freely convertible currency at IBUs to undertake any permissible current account or capital account transaction or any combination thereof under the Reserve Bank of India(RBI)’s  Liberalised Remittance Scheme (LRS).

iv.Lay down permissible activities of IBUs including credit enhancement, credit insurance, and sale, purchasing portfolios, engage in factoring and forfaiting of export receivables and undertake equipment leasing, including aircraft leasing.

v.Permit the authority to determine business that a banking unit may be allowed to conduct transactions in INR(Indian Rupee) with persons residing in India and persons residing outside India.

vi.This is subject to the settlement of the  financial transaction related to such business in freely convertible foreign currency.

Note- The regulations will be notified by the Government of India shortly.

What is Freely convertible currency?

It is a currency that does not have any government restrictions on currency exchange.It is also called as fully convertible currency

IFSC International Retail Business Development Committee headed by Pradip Shah presented the final report to IFSCA

IFSC International Retail Business Development Committee headed by Pradip Shah, Chairman of Indasia Fund Advisors Pvt Ltd. has presented the final report to IFSC.

The report mainly focuses on Banking, capital markets and insurance.

  • The Committee highlighted the chance for FinServ from India and taking India globally through IFSC.

Key recommendations for Banking

i.Permit retail participation including LRS investments by resident Indians and enable IFSC Banking Units (IBUs) to provide banking products and solutions to retail/ individual clients.

ii.Permit IBUs to offer foreign currency (FCY) clearing services from the IFSC. For this purpose, a central clearing mechanism should be set-up in the IFSC.

iii.Permit IBUs to open current account (including Escrow account) for all entities who wish to do so.

Key recommendations for Insurance

i.Permit NRIs/ Persons of Indian Origin (PIOs) to purchase Life Insurance policies for them and for their family members who are in India and abroad from companies set up in the IFSC and allow them to pay premium in the currency of their choice (including Indian rupees).

ii.IFSC need to emerge as a reinsurance hub for Asia and Africa with more encouraged reinsurers to establish a base in IFSC. It can also emerge as an aviation insurance Hub for the world.

iii.Net Owned Funds (NOF) requirement can be reduced to INR 5 billion to encourage mid-sized foreign reinsurers to set up base in the IFSC.

Key recommendations for Asset Management and Capital Markets:

i.Permit resident individuals to invest in Alternative Investment Funds (AIFs) or Mutual Funds (MFs) in the IFSC via the LRS route & permit them to invest in companies listed on the IFSC exchanges via the LRS route.

ii.Allow wholly owned subsidiaries of banks to operate as Trading/ Clearing Members without setting up a separate company.

iii.Develop a payment system for USD and other FCY settlements in the IFSC.Allow hybrid structures such as a Variable Capital Company (VCC) for managing funds in the IFSC.

Note

2 interim reports that cover banking and insurance were earlier submitted by the committee. This final report includes the recommendations on Capital Markets

About IFSC International Retail Business Development Committee:

IFSCA appointed the IFSC International Retail Business DevelopmentCommittee on August 3, 2020. It was given 3 months time to submit a report

Aim– To suggest ways to enhance International Retail Business in IFSC

Recent Related News:

i.On October 27, 2020, the International Financial Services Centres Authority (IFSCA) approved the International Financial Services Centres Authority (Bullion Exchange) Regulations, 2020 and International Financial Services Centres Authority (Global In-House Centres) Regulations, 2020 during a meeting chaired by Injeti Srinivas, Chairman of IFSCA.

ii.In exercise of the powers conferred by clause (t) of sub-section (1) of section 196 read with section 240 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Insolvency and Bankruptcy Board of India has amended the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 by Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) (Second Amendment) Regulations, 2020.

About International Financial Services Centres Authority (IFSCA):

It is a statutory unified regulatory body under the Department of Economic Affairs, Ministry of Finance, Government of India.
Chairman– Injeti Srinivas
Headquarters– Gandhinagar, Gujarat
Established– April, 2020 through International Financial Services Centres Authority Bill, 2019