Businesses in International Financial Service Center

My last article was an introduction to the concept of International Financial Service Center (IFSC) and this one is a brief about businesses that can be conducted in IFSC.
In the current scenario three sectors are allowed to operate in GIFT SEZ –IFSC (International Financial Service Center):
(a) Banking
(b) Insurance
(c ) Capital market,

where Banking sector is regulated by Reserve Bank of India(RBI), Insurance Sector by Insurance Regulatory and Development Authority of India(IRDAI) and Capital Market by Security and Exchange Board of India(SEBI).
“My vision is that in ten years from now, Gift city should become the price setter for at least a few of the largest traded instruments in the world, whether in commodities, currencies, equities, interest rates or any other financial instrument”.
-Prime Minister Narendra Modi
(a) Banking Sector in IFSC:
RBI by Notification No. FEMA.339/2015-RB dated March 02, 2015 has allowed banks to set up an IFSC banking Unit(IBU) in GIFT-SEZ IFSC.
Under above stated notification both
· Indian( public and private banks) who are authorized to deal in foreign exchange and,
· Foreign Banks already having presence in India,
are eligible to set up only one IBU.
Interested bank before opening IBU shall obtain prior permission of RBI under Section 23(1)(a) of Banking Regulation Act,1949. For most regulatory purposes, Indian bank setting up IBU will be treated on par with a foreign branch of an Indian bank. Whereas, in case of Foreign Bank setting up IBU, application will be considered on the basis of guidelines for setting up branch in India, subject to confirmation from home country’s regulator.

IBUs can only raise funds in foreign currency from PROI and overseas branch of Indian banks. However it can deploy fund with both PROI and PRI subject to Foreign Exchange Management Act (FEMA),1999.
Currently YES Bank, State Bank of India(SBI), ICICI Bank, Kotak Mahindra, Induslnd Bank, Fedral Bank, IDBI Bank are operating in IFSC India. More Indian and international banks have applied for permission to RBI for operating in IFSC.
(b) Insurance sector in IFSC:
The Insurance Regulatory & Development Authority had vide Circular ref: IRDA/NL/GDL/MISC/065/04/2015 dated 6th April, 2015 issued Insurance Regulatory and Development Authority of India (International Financial Service Center) Guidelines, 2015 that enable Insurers/Re insurers to open offices in the GIFT-SEZ IFSC.
Applicant meeting the eligibility criteria under Insurance Regulatory and Development Authority of India (International Financial Service Center) Guidelines, 2015 can establish an IFSC Insurance Office (IIO) in the GIFT-SEZ IFSC to transact Reinsurance and/or insurance business.

All Indian insurers are eligible to set up IIO in GIFT-SEZ IFSC, whereas, insurer registered with foreign Regulatory or Supervisory Authority can also set up IIO subject to having specified net worth, having registration or licensing for doing Insurance or reinsurance business in the country of incorporation and has continuous operating business during the preceding 5 years from date of the application.
IIO can accept reinsurance business of all classes of business within the SEZ and from outside the country and from the insurers operating in the DTA in accordance with the IRDAI Regulations on reinsurance. IIO needs to maintain a separate books of account and can open an account with banks operating in GIFT SEZ –IFSC.
Currently General Insurance Corporation of India (GIC Re) is operating in GIFT IFSC.
(c ) Capital market sector in IFSC
SEBI vide its Security and Exchange Board of India (International Finance Service Center) Guideline,2015 dated 27th March,2015 which came into force on 1st April,2015 has allowed for setting up unit in IFSC.
SEBI has allowed Stock exchange, Commodity Exchange, Clearing Corporation, Depository, Stock broker, sub-broker ,Investment Advisor, Portfolio manager, Alternate Investment Funds and Mutual Funds to set up and function in GIFT-SEZ IFSC by forming a new company in IFSC and subject to prior approval of SEBI and any other specified authority
Financial service by capital market intermediary and investment advice by portfolio manager can be provide to following class:
(a) a person not resident in India
(b) a non-resident Indian
(c ) financial institution resident in India who is eligible under FEMA to invest funds offshore, to the extent of outward investment permitted
(d) a person resident in India who is eligible under FEMA, to invest funds offshore, to the extent allowed under the Liberalized Remittance Scheme of Reserve Bank of India, subject to a minimum investment as specified by the SEBI.
To this date both BSE and NSE has set up there wholly owned subsidiaries as India International Exchange (IFSC) Ltd and NSE IFSC Ltd respectively as international exchange to grow financial market on international level.
Will be posting further about IFSC in my articles to come.
Till then share / recommend!! 😄
