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Core Purpose

Notification making the International Financial Services Centres Authority (Banking) (Amendment) Regulations, 2023, amending the IFSCA (Banking) Regulations, 2020 to introduce and revise definitions and capital requirements for IFSC Banking Companies (IBC) and IFSC Banking Units (IBU).

Detailed Summary

Notification IFSCA/2023-24/GN/REG041, dated 6th July 2023, issued by the International Financial Services Centres Authority under sub-section (1) of section 28 read with sub-section (1) of section 12 and sub-section (1) of section 13 of the International Financial Services Centres Authority Act, 2019, makes the International Financial Services Centres Authority (Banking) (Amendment) Regulations, 2023, amending the International Financial Services Centres Authority (Banking) Regulations, 2020 (the Principal Regulations, originally notified as IFSCA/2020-21/GN/REG004 on 20th November 2020 and corrected by corrigendum CG-MH-E-12052021-226980 dated 12th May 2021); the amendments introduce definitions of 'IFSC Banking Company' (IBC, a subsidiary company of the Parent Bank) and 'IFSC Banking Unit' (IBU, a branch of the Parent Bank), revise the definitions of 'Banking Unit,' 'Referral services' and 'Subsidiary company' (aligned to section 2(87) of the Companies Act, 2013), and permit an existing IBU to convert to an IBC with prior Authority approval; they set minimum capital requirements of USD 20 million for an IBU and USD 50 million for an IBC, to be maintained at the Parent Bank, require a No Objection Letter from the home regulator, and revise provisions on licensing applications and withdrawal, Liquidity Coverage Ratio and Net Stable Funding Ratio maintenance, Cash Reserve Ratio exemptions, permissible business in specified foreign currencies (with limited INR business permitted), account-opening for residents and non-residents, deposit insurance under the Deposit Insurance and Credit Guarantee Corporation Act, 1961, and permissible activities under section 6 of the Banking Regulation Act, 1949; a new First Schedule lists eleven specified foreign currencies: US Dollar, Euro, Japanese Yen, UK Pound Sterling, Canadian Dollar, Australian Dollar, Swiss Franc, Hong Kong Dollar, Singapore Dollar, UAE Dirham and Russian Rouble. Signed by Injeti Srinivas, Chairperson, Advt.-III/4/Exty./265/2023-24.

Full Text

EXTRAORDINARY PART III—Section 4 PUBLISHED BY AUTHORITY No. 482] NEW DELHI, FRIDAY, JULY 7, 2023/ ASHADH A 16, 1945 CG-GJ-E-10072023-247161 INTERNATIONAL FINANCIAL SERVICES CENTRES AUTHORITY NOTIFICATION Gandhinagar, the 6th July, 2023 International Financial Services Centres Authority (Banking) (Amendment) Regulations, 2023 IFSCA/2023 -24/GN/REG041. —In exercise of the powers conferred by sub -section (1) of Section 28 read with sub -section (1) of Section 12 and sub -section (1) of Section 13 of the International Financial Services Centres Authority Act, 2019, the Internatio nal Financial Services Centres Authority hereby makes the following regulations further to amend the International Financial Services Centres Authority (Banking) Regulations, 2020, namely: - 1. (i) These regulations may be called the International Financia l Services Centres Authority (Banking) (Amendment) Regulations, 2023. (ii) They shall come into force on the date of their publication in the Official Gazette. 2. In the International Financial Services Centres Authority (Banking) Regula tions, 2020 (hereinafter referred to as the Principal Regulations), the existing clause (c) under sub -regulation (1) of regulation 2, shall substituted with the following, namely : “Banking Unit” or “BU” means a financial institution defined under clau se (c) of sub -section (1) of Section 3 of the Act that is licensed or permitted by the Authority to undertake permissible activities under these regulations.” 3. In the Principal Regulations, after clause (ea) of sub -regulation (1) of regulation 2, the fol lowing clauses shall be inserted, namely: “(eb) “IFSC Banking Company” or “IBC” means a Banking Unit licensed or permitted by the Authority to operate in an IFSC as a subsidiary company of the Parent Bank. (ec) “IFSC Banking Unit” or “IBU” means a Banking Unit licensed or permitted by the Authority to operate in an IFSC as a branch of the Parent Bank.” 4. In the Principal Regulations, the existing clause (i) under sub -regulation (1) of regulation 2, shall substituted with the following, namely: “International Financial Services Centre” or “IFSC” shall have the same meaning as assigned to it under section clause (g) of sub -section (1) of Section 3 of the Act” 5. In the Principal Regulations, the existing clause (la) of sub -regulation (1) of regulation 2, shall be replaced as follows: “Referral services” means an activity in which a BU, pursuant to an arrangement with a financial product or financial service provider, refers its clients or the clie nts of its Parent Bank as potential customers (or "leads"), to such financial product or financial service provider for providing them the financial product(s) or financial service(s).” 6. In the Principal Regulations, the existing clause (la) under sub s ub-regulation (1) of regulation 2, shall be renamed as clause (lb). 7. In the Principal Regulations, after clause (n) of sub -regulation 1 of regulation 2, following clause shall be inserted, namely, “(na) “Specified foreign currencies” means currencies as specified in the First Schedule to these regulations.” 8. In the Principal Regulations, the existing clause (oa) of sub -regulation (1) of regulation 2, shall be replaced as follows: “(oa) “ Subsidiary company” means a company that satisfies the de finition u/s 2(87) of the Companies Act, 2013.” 9. In the Principal Regulations, the existing clause (oa) under sub sub -regulation (1) of regulation 2, shall be renamed as clause (ob). 10. In the Principal Regulations, the existing sub -regulation (1) of r egulation 3 shall be substituted with the following: “Indian Banks and Foreign Banks shall require licence or permission from the Authority to set up a Banking Unit in an International Financial Services Centre.” 11. In the Principal Regulations, after su b-regulation (1) of regulation 3, following clause shall be inserted, namely, “(1A) A Banking unit may be set up in an IFSC as an : a) IFSC Banking Unit or IBU; or b) IFSC Banking Company or IBC provided that a Parent Bank who has already set up an IBU in an IFSC, may be permitted to convert the same to an IBC, with the prior approval of the Authority, subject to such conditions as may be specified by the Authority.” 12. In the Principal Regulations, sub regulation (2) of regulation 3, shall be substituted with the following, namely: “An application for setting up a Banking Unit shall be made by the Parent Bank in the form and manner as specified by the Authority.“ 13. In the Principal Regulations, after sub -regulation (2) of regulation 3, following clause shall be inserted, namely, “(2A) The application filed under regulation 3(2) can be withdrawn by the Parent Bank at any time before the grant of the license or permission by the Authority.” 14. In the Principal Regulations, sub regulation 3 of regulation 3, shall be substituted with the following, namely: “The applicant shall satisfy the following requirements for grant of licence or permission by the Authority to set up an IFSC Banking Unit: (a) The Parent Bank shall provide necessary capital for the IBU, subject to a minimum of USD 20 million or such other level of capital that may be specified by the Authority. Such capital shall be maintained at the Parent Bank in the manner as specified by the Authority. (b) The Parent Bank shall obtain a No Objection Letter from its home regulator regarding setting up of the Banking Unit in the IFSC as a branch of the Parent Bank ; (c) The Parent Bank shall submit an undertaking that it shall provide liquidity to its IBU whenever needed fo r the operations of the IBU (d) Any other requirement as may be specified by the Authority.” 15. In the Principal Regulations, after sub regulation 3 of regulation 3, following sub - regulation shall be inserted, namely: “(3A) The applicant shall satisfy the following requirements for grant of licence or permission by the Authority to set up an IFSC Banking Company: (a) The Parent Bank shall provide necessary capital for the IBC, subject to a minimum of USD 50 million or such other level of capital that may be specified by the Authority. Such capital shall be calculated and shall be maintained as specified by the Authority. (b) The Parent Bank shall obtain a No Objection Letter from its Home Regulator regarding setting up of the Banking Unit in the IFSC a s a Subsidiary company of the Parent Bank (c) Any other condition that the Authority may specify 16. In the Principal Regulations, sub regulation 4 of regulation 3, shall be substituted with the following, namely: “A Foreign Bank, not having its presen ce in India, wishing to set up a Banking Unit in an IFSC, shall comply with such additional requirements as may be specified by the Authority. ” 17. In the Principal Regulations, sub regulation 5 of regulation 3, shall be substituted with the following, namely: “After considering an application for setting up a Banking Unit, the Authority may grant licence or permission to the applicant subject to such conditions as provided under these regulations or such other conditions as it may deem fit.” 18. In the Pr incipal Regulations, sub regulation 6 of regulation 3, shall be substituted with the following, namely: “Where the Authority is of the opinion that licence or permission cannot be granted, it may give thirty days’ time to the applicant, setting out the grounds based on which it cannot grant licence or permission, to enable the applicant to make written submissions, if any.” 19. In the Principal Regulations, sub regulation 8 of regulation 3 shall be deleted 20. In the Principal Regulations, sub regulation 2 of regulation 4, shall be substituted with the following, namely: “(1) Banking Units, whether operating as an IBU or an IBC, shall adhere to the norms and guidelines as may be specified by the Authority, from time to time. (2) Banking Units operating a s an IBU shall also comply with the directions and instructions issued by the Home Regulator of its Parent Bank, unless otherwise specified by the Authority.” 21. In the Principal Regulations, sub -regulation 1 of regulation 5, shall be substituted with the following, namely: “A Banking Unit shall maintain the Liquidity Coverage Ratio as may be specified by the Authority Provided that in the case of an IBU the Liquidity Coverage Ratio may be maintained by the Parent Bank with the prior approval of the Autho rity.” 22. In the Principal Regulations, sub -regulation 2 of regulation 5, shall be substituted with the following, namely: “Net Stable Funding Ratio shall be made applicable to a Banking Unit as and when determined by the Authority and shall be maintaine d by a Banking Unit Provided that in the case of an IBU, the Net Stable Funding Ratio may be maintained by the Parent Bank with the prior approval of the Authority.” 23. In the Principal Regulations, regulation 6, shall be substituted with the following, namely: “Banking Units shall adhere to the norms and guidelines relating to Leverage Ratio as may be specified by the Authority, from time to time ” 24. In the Principal Regulations, regulation 8, shall be substituted with the following, namely: “(1) Th e liabilities of an IBU , other than the deposits raised from individuals resident in India or outside India shall be exempted from Cash Reserve Ratio or such other requirements as may be specified by the Authority. (2) The deposits raised by an IBU from individuals resident in India or outside India shall be subject to such Reserve Ratios as may be specified by the Authority. (3) An IBC shall maintain such reserves and in such manner as are mandated under the Banking Regulation Act, 1949 and the Reserve Bank of India, 1934” 25. In the Principal Regulations, regulation 10, shall be substituted with the following, namely: “A Banking Unit shall conduct such business in the specified foreign currencies and with such persons, whether resident or otherwise, as may be specified by the Authority. Provided that a Banking Unit may be permitted to conduct such business in INR with such persons, whether resident or otherwise, as may be specified by the Authority, subject to settlement of the financial transaction in relation to such business in the specified foreign currencies.” 26. In the Principal Regulations, regulation 11, shall be substituted with the following, namely: “(1) Banking Units may open accounts in the specified foreign currencies for individuals and corporate or institutional entities, resident in India or outside India, subject to such conditions as may be specified by the Authority. (2) Individuals who are person resident in India are permitted to open, hold and maintain accounts in the speci fied foreign currencies, with a Banking Unit, for undertaking transactions connected with or arising from any permissible current or capital account transaction or a combination of both as specified in the Liberalised Remittance Scheme (LRS) of the Reserve Bank.” 27. In the Principal Regulations, sub -regulation 2 of regulation 12, shall be substituted with the following, namely: “An account in the specified foreign currencies may be opened, held and maintained with a Banking Unit in the form of current or savings or term deposit in cases where the account holder is an individual, and in the form of current or term deposit in all other cases, subject to such conditions as may be specified by the Authority.” 28. In the Principal Regulations, regulation 13, s hall be substituted with the following, namely: “(1) A Banking Unit may undertake any or all the activities mentioned under clause (e) of sub -section (1) of Section 3 of the Act and Section 6 of the Banking Regulation Act, 1949, except those which are ex pressly prohibited either by the Home Regulator of the Parent Bank or by the Authority, subject to compliance with such terms and conditions or guidelines as may be specified by the Authority, including matters relating to design, execution and risk manage ment. (2) For the removal of doubts, it is hereby declared that the activity of providing “Referral services” is a permitted activity under these regulations.” 29. In the Principal Regulations, regulation 14, shall be substituted with the following, namel y: “A Banking Unit shall follow the Anti Money Laundering, Counter -Terrorist Financing and Know Your Customer Guidelines issued by the Authority.” 30. In the Principal Regulations, regulation 16 shall be substituted with the following, namely: “A Banki ng Unit shall maintain its books of accounts, records and documents in the specified foreign currencies, as may be declared at the time of making an application under Regulation 3.” 31. In the Principal Regulations, sub -regulation 1 of regulation 17 shall be substituted with the following, namely: “A Banking Unit shall be permitted to have an INR account out of the specified foreign currencies to defray their administrative and statutory expenses, and for such other purposes as may be specified by the Authority.” 32. In the Principal Regulations, regulation 18 shall be substituted with the following, namely: “Deposits of a Banking Unit may be insured subject to applicability of and to the extent provided under the Deposit Insurance and Credit Guarantee Co rporation Act, 1961 and any rules or regulations made thereunder.” 33. In the Principal Regulations, regulation 19 shall be substituted with the following, namely: “A Banking Unit may exchange margins in the specified foreign currencies or permissible lis ted debt securities and sovereigns with a counter party Banking Unit or overseas regulated entity for non -centrally cleared over the counter currency, interest rate, credit and commodity derivative contracts to reflect mark to market exposure under a lega lly enforceable netting arrangement as may be specified by the Authority.” 34. At the end of the Principal Regulations, the following shall be inserted as the First Schedule, namely : THE FIRST SCHEDULE [See Section 20 of the Act and regulation 2(1)(na)] SPECIFIED FOREIGN CURRENCIES i. US Dollar (USD) ii. Euro (EUR) iii. Japanese Yen (JPY) iv. UK Pound Sterling (GBP) v. Canadian Dollar (CAD) vi. Australian Dollar (AUD) vii. Swiss Franc (CHF) viii. Hong Kong Dollar (HKD) ix. Singapore Dollar (SGD) x. UAE Dirham (AED) xi. Russian Rouble (RUB) INJETI SRINIVAS, Chairperson [ADVT. -III/4/Exty./265/2023 -24] Note: 1. The International Financial Services Centres Authority (Banking) Regulations, 2020 were published in the Gazette of India Extraordinary vide notif ication No. IFSCA/2020 -21/GN/REG004 on 20th November 2020, to be read with the Corrigendum published in the Gazette of India Extraordinary vide notification No. CG -MH-E-12052021 -226980, on 12th May, 2021; 2. The International Financial Services Centres Au thority (Banking) (Amendment) Regulations, 2021 were published in the Gazette of India Extraordinary vide notification No. IFSCA/2020 -21/GN/REG009 on 25th March, 2021; and 3. The International Financial Services Centres Authority (Banking) (Amendment) Regu lations, 2021 were published in the Gazette of India Extraordinary vide notification No. IFSCA/2021 -22/GN/REG013 on 05th July, 2021. 4. The International Financial Services Centres Authority (Banking) (Amendment) Regulations, 2022 were published in the Gaz ette of India Extraordinary vide notification No. IFSCA/2022 -23/GN/REG025 on 29th of June, 2022. Uploaded by Dte . of Printing at Government of India Press, Ring Road, Mayapuri, New Delhi -110064 and Published by the Controller of Publications, Delhi -110054 .

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