Current Account Convertibility Comes to India in Gift City

In one of the Major Financial Reforms, Indian Government wide their International Financial Services Centres Authority (Banking) Regulations, 2020 Notification dated 18th November, 2020 allowed Banks to Open Branches in Gift City.

Currency for conducting business

A Banking Unit shall conduct such business in freely convertible 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 freely convertible foreign currency.

• Foreign currency accounts
  The following persons are permitted to open, hold and maintain foreign currency accounts with a Banking
  Unit:
  (a) Qualified Individuals;
  (b) Persons resident outside India who are corporate or institutional entities, in the manner as may be
  specified by the Authority;
  (c) Persons resident in India, who are corporate or institutional entities, subject to such requirements as may
  be specified by the Authority;Qualified Resident Individuals are permitted to open, hold and maintain accounts in a freely convertible
  foreign currency, 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 of the Reserve Bank of India.
• Transactions through foreign currency accounts

Cash transactions in foreign currency accounts shall not be permitted.

An account in a freely convertible foreign currency 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,

1. Permitted activities
   A Banking Unit may undertake the following activities, 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
   management:
   (1) Lend in the form of loans, trade finances and acceptances, commitments and guarantees, carry out credit
   enhancement, credit insurance, and sale and purchase of portfolios;
   (2) Undertake inter-bank borrowings and lending;
   (3) Undertake investments, including subscribing, acquiring, holding, underwriting or transferring securities
   or such other instruments, as may be specified by theAuthority, as principal or agent.
   (4) Extend Post-Shipment Export Credit in foreign currency, or engage in factoring and forfaiting of export
   receivables, subject to the guidelines specified by the Authority
   (5) Undertake equipment leasing, including aircraft leasing;
   (6) Participate in derivative transactions:
   (a) enter into over the counter derivative contracts for its asset liability management requirements;
   (b) undertake over the counter derivative contracts for its own account or for its corporate or Qualified
   Individual clients;
   (c) transact in Interest Rate and Currency Derivatives in INR, with settlement in foreign currency, listed on
   a Stock Exchange;
   (d) undertake derivative or forward contracts in gold for hedging its gold investments;
   (e) offer non-deliverable currency contracts involving INR, or otherwise, to persons resident outside
   India and Banks in India having presence in the International Financial Services Centre.

Implications

• Banks can be opened in Gift City
• They can provide Foreign currency accounts for both Current Account & Capital Account Transactions
• Liberalised Remittance scheme of 250,000 Dollars can be used by Resident Indians to Transfer money in Gift City.
•  All products including NDF is now available in Gift City

Challenges

Will foreign banks open and offer products ?

Weather FPIs and FDIs shift from US and Singapore market to gift city ?

How much volumes shift from Other Centers to Gift City ?

The Move by the Indian Government is Bold and its success will depend on its implementation and interest by Major Players in shifting their base from Other Centers to Gift City

Full Notification    IFSCA Banking Regulation 2020