RBI modifies directions related to IFSC Banking Units

Dec 26, 2019 | by Avantis RegTech Legal Research Team

Finance & Taxation Compliance

The Reserve Bank of India (RBI) on December 23, 2019, modifies the directions relating to IFSC Banking Units (IBUs). RBI had received recommendations from various stakeholders regarding operations of the IBUs and financial institutions in IFSCs. Thus, RBI has modified the RBI Circular DBR.IBD.BC.14570/23.13.004/2014-15 dated April 01, 2015.

The followings are the amendments made:-

1. RBI will not prescribe any limit for raising short-term liabilities from banks. However, the IBUs must maintain LCR as applicable to Indian banks on a stand-alone basis and strictly follow the liquidity risk management guidelines issued by RBI to banks. Further, NSFR will also be applicable to IBUs as and when it is applied to Indian banks.

2. IBUs are not allowed to open savings accounts. They can open foreign currency current accounts of units operating in IFSC and of non-resident institutional investors to facilitate their investment transactions and can also open foreign currency current accounts (including escrow accounts) of their corporate borrowers subject to the provisions of FEMA 1999 and regulations issued thereunder. However, IBUs cannot raise liabilities from retail customers including high net worth individuals (HNIs). Also, no cheque facility will be available for holders of current accounts in the IBUs. All transactions through these accounts must be undertaken via bank transfers.

3. The IBUs can accept fixed deposits in foreign currency of tenor less than one year from non-bank entities and can also repay fixed deposits prematurely without any time restrictions.

4. The IBUs will be required to scrupulously follow "Know Your Customer (KYC)", Combating of Financing of Terrorism (CFT) and other anti-money laundering instructions issued by RBI from time to time. IBUs are prohibited from undertaking cash transactions.

[RBI Circular DOR.IBD.BC.26/23.13.004/2019-20]


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