The Hindu Business Line : SEZ banks to have $10-m capital infusion by parent

BANKS setting up offshore banking units (OBU) in Special Economic Zones (SEZ) would have to allocate a minimum capital of $10 million. They will, however, be exempted from CRR requirement, and on request, also from SLR requirement for specific period, the RBI notified today.

According to the RBI scheme, since OBUs would be branches of Indian banks, no separate assigned capital for such branches would be required. However, with a view to enabling them to start their operations, the parent bank would be required to provide a minimum of $10 million to its OBU. All public sector, private sector and foreign banks authorised to deal in foreign exchange can set up OBUs. Banks having overseas branches and the experience of running OBUs would be given preference. Each bank would be permitted to establish only one OBU, which would essentially carry on wholesale banking operations, as per the scheme.

All prudential norms applicable to overseas branches of Indian banks would apply to the OBUs. They would be required to follow the best international practice of 90 days' payment delinquency norm for income recognition, asset classification and provisioning.

As per the guidelines, the sources for raising foreign currency funds would be only external. Funds can also be raised from those resident sources to the extent such residents are permitted under the existing exchange control regulations to invest/maintain foreign currency accounts abroad. Deployment of funds would be restricted to lending to units located in the SEZ and SEZ developers. Foreign currency requirements of corporates in the domestic area can also be met by the OBUs. If funds are lent to residents in the Domestic Tariff Area (DTA), existing exchange control regulations would apply to the beneficiaries in DTA.

The RBI will stipulate certain licensing conditions such as dealing only in foreign currencies, restrictions on dealing in Indian rupee, access to domestic money market, etc., on the functioning of the OBUs. The parent bank's application for branch licence should itself state that it proposes to conduct business at the OBU branch in foreign currency only.

Further, with a view to ensuring that anti-money laundering instructions are strictly complied with by the OBUs, they are prohibited from undertaking cash transactions, and transactions with individuals.

The OBUs would operate and maintain balance sheet only in foreign currency and would not be allowed to deal in Indian rupees except for having a special Rupee account out of convertible fund to meet their day to day expenses. These branches would be prohibited from participating in domestic call, notice, term, etc., money market and payment system. Operations of the OBUs in rupees would be minimal in nature, and any such operations in the domestic area would be through the Authorised Dealers (distinct from OBUs), which would be subject to the current exchange control regulations in force.

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