Banking units in IFSC must have capital of at least $20 mn

An International Financial Services Centre is being set up at Gandhinagar, Gujarat as part of an SEZ

The Reserve Bank of India (RBI) has mandated capital of at least $20 million for setting up banking units in the International Financial Services Centre (IFSC) near Gandhinagar, Gujarat. Both Indian banks and foreign banks in India have to adhere to this requirement.

The banking regulator also said banks seeking to set up units within special financial zones could only transact in currencies other than the rupee.

Banking units within the IFSC will be required to follow the rules applicable to Indian banks in terms of bad loans, provisioning, income recognition and asset classification. Each bank would be allowed to set up only a single unit in an IFSC, RBI said. The liabilities of the banking unit would be exempt from the cash reserve ratio and statutory liquidity ratio requirements.

RBI said such units could carry out transactions with non-resident entities other than individual and retail customers and high net worth individuals. Besides, these units won’t be allowed to open current or savings accounts and cannot issue bearer instruments or cheques. All payment transactions must be through bank transfers.

Loans and advances of these banking units would not be considered part of the net credit of the parent bank for computing priority sector lending obligations. The deposits of these units will not be covered under deposit insurance and no liquidity support from the central bank will be available for these.