Setting up of IFSC Banking Units (IBUs) – Permissible activities

Executive Summary: This circular, issued by the RBI on December 23, 2019, modifies the existing directions for IFSC Banking Units (IBUs) outlined in the April 1, 2015 circular. The modifications address stakeholder suggestions and queries regarding IBU operations and financial institutions in IFSCs. The changes primarily concern short-term liabilities, permissible accounts, fixed deposits, and KYC/AML compliance. Key Points / Main Content: * **Short-Term Liabilities and Liquidity:** * RBI will not limit short-term liabilities raised from banks. * IBUs must maintain the LCR applicable to Indian banks on a standalone basis. * IBUs must follow RBI's liquidity risk management guidelines. * NSFR will be applicable to IBUs when it is applied to Indian banks. * **Permissible Accounts:** * IBUs cannot open savings accounts. * IBUs can open foreign currency current accounts for: * Units operating in IFSC. * Non-resident institutional investors for investment transactions. * Corporate borrowers (including escrow accounts), subject to FEMA 1999 provisions. * IBUs cannot raise liabilities from retail customers, including HNIs. * No cheque facility for current accounts in IBUs; transactions must be via bank transfers. * **Fixed Deposits:** * IBUs can accept foreign currency fixed deposits of less than one year from non-bank entities. * IBUs can repay fixed deposits prematurely without time restrictions. * **KYC/AML Compliance:** * IBUs must strictly follow KYC, CFT, and other anti-money laundering instructions issued by RBI and other Indian agencies, including reporting requirements. * IBUs are prohibited from undertaking cash transactions. Impact Analysis: Scheduled Commercial Banks (excluding Regional Rural Banks) * Impact: These banks are affected by the revised guidelines for setting up and operating IFSC Banking Units (IBUs), particularly regarding short-term liabilities, permissible accounts, fixed deposits, and KYC/AML compliance. * Action Required: Ensure compliance with the updated guidelines, including LCR and liquidity risk management, restrictions on account types, and adherence to KYC/AML directives. IFSC Banking Units (IBUs) * Impact: IBUs are directly impacted by the modifications to operational guidelines, affecting their ability to raise liabilities, open accounts, manage fixed deposits, and comply with regulatory requirements. * Action Required: Adjust operations to align with the new directives, including changes to account offerings, adherence to LCR and NSFR requirements, and strict compliance with KYC/AML regulations. Units Operating in IFSC * Impact: The ability to open foreign currency current accounts in IBUs to facilitate their investment transactions. * Action Required: Should comply with the guidelines for operating such accounts. Non-Resident Institutional Investors * Impact: The ability to open foreign currency current accounts in IBUs to facilitate their investment transactions. * Action Required: Should comply with the guidelines for operating such accounts. Corporate Borrowers * Impact: The ability to open foreign currency current accounts, including escrow accounts, in IBUs, subject to FEMA 1999 provisions. * Action Required: Should comply with the guidelines for operating such accounts and follow FEMA regulations.

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