Gujarat International Finance Tec-City | Some Basics

An International Financial Service Centre (“IFSC”) essentially caters to customers outside the jurisdiction of the host domestic economy, dealing with flows of financial products and services to and from the host economy with foreign entities. It is considered preferable to set up IFSCs in SEZs in India since the compliance requirements in SEZs are comparatively lower than outside SEZs. The Ministries of Commerce and Industry and Finance have issued various notifications on the procedure for setting up of IFSCs and regulation of the same.

The Gujarat International Finance Tec-City (“Gift City”) was the first IFSC set up in India by the Central Government pursuant to the powers granted to it under Section 18 of the Special Economic Zones (“SEZ”) Act, 2005. Presently, Gift City is the only IFSC permitted to function in India. All its transactions are required to be carried out in foreign currency, however IFSC units may denominate administrative and statutory expenses in Indian Rupees.

The regulators overseeing the financial transactions which may be undertaken in Gift City are RBI, SEBI and / or IRDA, depending on the nature of activity undertaken. Further, RBI, SEBI and IRDA have issued guidelines in relation to IFSCs and foreign exchange management regulations have also been issued. Entities that may be set up are units in the Banking, Insurance and Capital Market sectors. Indian banks and foreign banks which have Indian presence may set up International Banking Units (“IBU”) in IFSCs. Such IBUs are exempt from CRR and SLR requirements. However, the minimum capital of the IBU must be USD 20 Million. The activities which may be undertaken by the IBU is to be as per Section 6(1) of the Banking Regulation Act, 1948 and also its license conditions, if any.

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