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International Financial Services Centres Authority amends banking regulations to allow for setting up of subsidiaries or branch of parent banks

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The International Financial Services Centres Authority has notified International Financial Services Centres Authority (Banking) (Amendment) Regulations, 2023, to permit banks to set up a Banking Unit (BU) either as a “subsidiary” known as IFSC Banking Company (IBC) or as a “branch” known as IFSC Banking Unit (IBU).

Earlier, the International Financial Services Centres Authority(Banking) Regulations, 2020 permitted a parent bank to set up only one Banking Unit in an IFSC and only as a branch. Banking business in IFSC has witnessed steady growth since the banking regulations were first notified on November 20, 2020. While the branch model is a useful starting point for commencement of banking operations, especially in new jurisdiction like GIFT-IFSC, future growth of the sector requires consideration of other models including operating as subsidiary company of the parent bank.

The amendment to the banking regulations further also notify the eligibility criteria for a IFSC Banking Unit to be a minimum capital of USD 20 million as provided by the parent bank, a No-objection certificate provided to the parent bank by its home regulator regarding setting up of a banking unit as a branch of the parent bank and an undertaking by the parent bank that it shall provide liquidity to its banking unit whenever needed for the operations of the IBU. Similarly, the amendment also notifies the eligibility criteria for an IFSC Banking Company to be a minimum capital of USD 50 million as provided by the parent bank and further similar conditions as prescribed for an IBU.

The amendment also inserted the First Schedule which provides a list of specified foreign currencies which includes (i) US Dollar, (ii) Euro, (iii) Japanese Yen, (iv) UK Pound Sterling, (v) Canadian Dollar, (vi) Australian Dollar, (vii) Swiss Franc, (viii) Hong Kong Dollar, (ix) Singapore Dollar, (x) UAE Dirham and (xi) Russian Rouble in which a Banking Unit shall conduct such business with such persons, whether resident or otherwise, as may be specified by the International Financial Services Centres Authority.

A copy of the gazette notification is attached below.

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