I. Permissible Activities of International Financial Services Centre (IFSC) Banking Units (IBUs)
As per Section 6(1) of the Banking Regulation Act, IBUs are permitted to engage in the following business activities, subject to the conditions outlined in the licence issued to them:
- Eligible Transactions and Clientele
IBUs may transact with both resident entities (for deployment of funds) and non-resident entities (for raising resources and deploying funds), excluding individuals, including High Net-Worth Individuals (HNIs) and retail customers. - Currency of Transactions
All transactions undertaken by IBUs must be in currencies other than the Indian Rupee (INR). - Dealings with Overseas Subsidiaries
IBUs are permitted to deal with Wholly Owned Subsidiaries and Joint Ventures of Indian companies that are incorporated abroad. - Short-Term Liabilities and Liquidity Norms
The Reserve Bank of India (RBI) does not prescribe limits on short-term liabilities raised from banks. However, IBUs are required to maintain the Liquidity Coverage Ratio (LCR) as applicable to Indian banks on a stand-alone basis and adhere strictly to RBI’s liquidity risk management guidelines. The Net Stable Funding Ratio (NSFR) will also be applicable to IBUs once implemented for Indian banks. - Restrictions on Retail Banking Activities
IBUs are not permitted to open savings bank accounts or raise liabilities from retail customers, including HNIs. Cheque facilities are not available for current account holders. All such transactions must be conducted via bank transfers. - Factoring and Forfaiting
IBUs are allowed to undertake factoring and forfaiting of export receivables. - Derivatives and Structured Products
With prior approval from their Board of Directors, IBUs may undertake derivative transactions, including structured products that are permitted for banks operating in India as per current RBI guidelines. For any additional derivative products, prior approval from the RBI is mandatory. Before approaching the RBI, the parent bank must ensure that the IBU possesses the requisite expertise for product pricing, valuation, capital charge computation, and risk management. The Board’s approval must also be secured in such cases. - Handling GDR/ADR Subscriptions
IBUs may open foreign currency accounts to temporarily hold subscriptions for Global Depository Receipts (GDRs) and American Depository Receipts (ADRs) until issuance. After issuance, the funds must be transferred to the client’s account outside the IBU and cannot be retained in any form, including long-term deposits. - Underwriting of Overseas Bonds
IBUs are permitted to act as underwriters or arrangers of INR-denominated bonds issued by Indian entities in overseas markets, in line with the RBI’s directions (FED CO.AP Dir Circular No. 17 dated September 29, 2015). If any portion of the underwritten issuance devolves on the IBU, efforts must be made to offload these holdings. Post six months from the date of issue, such holdings should not exceed 5% of the total issue size. - Exchange Trading Membership
An IBU may register as a Trading Member on exchanges within the IFSC for trading in interest rate and currency derivatives, as permitted to Indian banks under existing RBI guidelines. - Professional Clearing Member (PCM) Status
IBUs may also act as Professional Clearing Members for clearing and settlement in any derivative segment of IFSC exchanges, subject to specific conditions.
II. Foreign Portfolio Investment (FPI): Overview and Regulatory Framework
Foreign Portfolio Investment (FPI) refers to investments by foreign entities in Indian equity and debt securities without acquiring significant control. FPIs are instrumental in bringing capital into Indian markets, complementing Foreign Direct Investment (FDI) by enhancing liquidity and integrating India with global financial systems.
1. Regulatory Oversight
FPIs in India are regulated jointly by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI):
- SEBI: The SEBI (Foreign Portfolio Investors) Regulations, 2019 replaced the earlier 2014 framework. These regulations govern registration, permissible instruments, and compliance requirements. FPIs are required to register through SEBI-approved Depository Participants.
- RBI: The RBI oversees foreign exchange management, monitors investment limits, and ensures accurate reporting of capital flows under the Foreign Exchange Management Act (FEMA).
Together, these institutions provide a liberal yet robust framework for foreign portfolio investments.
III. Relaxations for FPIs at GIFT City IFSC
Foreign Portfolio Investors operating through the Gujarat International Finance Tec-City (GIFT City) enjoy several tax and regulatory relaxations designed to promote the IFSC ecosystem:
- Tax Incentives
- 100% income tax exemption for a specified period.
- Exemption from capital gains tax.
- Interest income and transaction-related tax exemptions.
- Regulatory Exemptions
- Exemption from Indian exchange control regulations under FEMA.
- Up to 100% Non-Resident Indian (NRI) contribution permitted in FPIs based at GIFT IFSC.
- Tax-neutral relocation of funds to GIFT City.
- Other Benefits
- Access to state subsidies and customs duty exemptions.
- Relief under Goods and Services Tax (GST) provisions.
These incentives are aimed at positioning GIFT City as a globally competitive financial centre.
Disclaimer
The information provided herein is intended solely for educational and informational purposes. It should not be construed as financial, legal, or investment advice. While every effort has been made to ensure accuracy, the content is subject to change based on legislative amendments or judicial decisions. Readers are advised to consult qualified financial or legal professionals for guidance tailored to their specific circumstances.
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