How GIFT City's new forex settlement system can be a game-changer for India

The new real-time foreign currency settlement system situates GIFT City among global financial centres like Hong Kong and Tokyo, with a promise of faster transactions and better liquidity

Union Finance Minister Nirmala Sitharaman on Tuesday (October 7) launched a Foreign Currency Settlement System (FCSS) at the International Financial Services Centre (IFSC) in Gujarat International Finance Tec-City (GIFT City). It means that transactions in foreign currency by entities within GIFT IFSC can now be settled in real time or near real time, instead of the current delays of 36-48 hours under traditional correspondent banking.

 

This positions GIFT City among the select group of global financial centres (such as Hong Kong, Tokyo, Manila) that have local infrastructure to settle foreign currency transactions. With this infrastructure in place, the system aims to reduce settlement time dramatically, enhance liquidity management, lower settlement risk, and improve operational efficiency.

 

 

What is foreign currency settlement system?

 

Until recently, entities in GIFT City depended on foreign banks abroad for settling transactions in global currencies like the US dollar, euro, or yen. This meant higher costs, longer processing times, and dependence on overseas systems. 

 

To address that, the RBI and International Financial Services Centres Authority (IFSCA) have introduced a foreign currency settlement system, a mechanism allowing Indian banks operating in GIFT City to clear and settle international trades within India itself.

 

Currently, foreign currency transactions in GIFT IFSC are processed via correspondent banking routes. This means an initiating bank uses multiple Nostro account relationships (accounts held with foreign banks) and intermediaries to route funds. That chain of relay can lead to settlement lags of 36 to 48 hours.   

What will FCSS do differently? 

Under the FCSS, a local settlement bank (selected via bidding) will serve as the settlement hub. Member IFSC Banking Units (IBUs) will open accounts with this settlement bank. Inter-bank foreign currency transactions will be settled directly via these accounts, bypassing the multi-leg Nostro chain.

 

Initially, the system will support US dollar transactions, with scope to add other foreign currencies over time. The system will operate under the regulatory framework of the Payment and Settlement Systems (PSS) Act, 2007, and is authorised by IFSCA. 

 

Additionally, CCIL IFSC Ltd, a subsidiary of Clearing Corporation of India, is the designated operator (Payment System Operator, or PSO),  while the software is being developed by Indian Financial Technology & Allied Services (IFTAS), a wholly-owned subsidiary of the Reserve Bank of India.

 

For US dollar settlements, Standard Chartered has been designated as the partner bank, operating through its unit in the financial hub and the settlement times have dropped from up to two days to as little as 4-5 seconds.

 

What exactly is GIFT City? 

GIFT City is India’s first special economic zone, which is designed to host institutions dealing in global finance, insurance, fintech, and capital markets.

 

It sits between Ahmedabad and Gandhinagar and is built over nearly 886 acres of land. The idea was to create a city-within-a-city where companies could transact in foreign currencies, follow global regulations, and attract international players who might otherwise prefer London, Singapore, or Dubai.

 

The project was first conceived in 2007, and its development was backed by both the Gujarat government and the Centre. The IFSCA, which was set up in 2020, regulates all activities inside the GIFT City, very similar to how Sebi, RBI, IRDAI, and PFRDA operate for their respective sectors.

 

Why was GIFT City commissioned? 

Before GIFT City, many Indian companies raised funds or managed offshore investments through hubs such as Singapore or Mauritius, largely because of friendlier tax and regulatory frameworks there. India was losing potential revenue and global financial influence as a result.

 

The idea behind GIFT City was to bring those offshore activities back onshore by offering a similar ecosystem within India, but with international standards of ease and flexibility.

 

To do this, GIFT City was given special rules. It operates almost like a separate jurisdiction under Indian sovereignty, allowing financial transactions in foreign currencies, with zero capital gains tax for certain periods, tax holidays, and a liberal regulatory environment.

 

 

What is GIFT City’s role in India’s economy? 

GIFT City is part of India’s long-term goal to position itself as a global financial hub, competing with centres such as Dubai International Financial Centre (DIFC) or Singapore’s Marina Bay.

 

The Centre hopes that by attracting multinational banks, investment funds, and technology firms, GIFT City can generate high-value jobs, draw global capital, and reduce financial outflows to offshore centres.

 

Notable achievements of GIFT City so far 

As of mid-2025, it hosts nearly 1,000 registered entities, a mix of Indian and foreign banks, insurance firms, asset management companies, and capital market intermediaries

 

For example, India INX, a subsidiary of BSE, allows 22-hour trading in global securities, while NSE IX offers similar services. Both exchanges have been recording steady increases in turnover, indicating rising participation.

 

GIFT City is also home to India’s first aircraft and ship leasing units, following the government’s push to develop the leasing and financing ecosystem domestically. Several global players, including aircraft lessors, fund managers, and fintech startups, have set up operations there.

 

In recent years, GIFT City has attracted interest from Morgan Stanley, HSBC, Standard Chartered, and MUFG Bank, among others. It has also become a centre for offshore derivative instruments and sustainable finance products, with green bonds and ESG funds being launched.