Banking Services and Finance Companies in IFSC: formula sheet

Key formulas

Regulator and source

IFSCA Act, 2019 → IFSCA (Banking) Regulations, 2020 → licence to IBU

IFSCA is the licensing and supervising authority for IBUs. Home regulator approval (for example RBI for an Indian bank) is also needed.

Who can set up an IBU

Eligible Indian bank or foreign bank + home regulator approval/no objection + IFSCA licence

The applicant must meet the conditions in the regulations. Check the current text for the exact list.

Nature of an IBU

IBU = separate business unit of a bank, operating in IFSC, mainly in foreign currency

It is not a separate company by default. It is a unit of its parent bank.

Answer structure

Eligibility → Licence → Permitted activities → Ongoing compliance

Use this order for any theory or case question on IBUs.

Capital adequacy ratio (CRAR)

CRAR = Eligible capital ÷ Risk-weighted assets × 100

Use the minimum ratio given in the IFSCA text or in the question. Risk weights depend on the asset type and the counterparty.

Liquidity Coverage Ratio (LCR)

LCR = Stock of high-quality liquid assets ÷ Net cash outflows over the next 30 days × 100

Under the Basel framework the standard is at least 100%. Confirm the threshold that IFSCA applies to the IBU.

Net Stable Funding Ratio (NSFR)

NSFR = Available stable funding ÷ Required stable funding × 100

Under the Basel framework the standard is at least 100%. It measures funding stability over a one-year horizon.

Exposure to a single counterparty

Exposure ratio = Exposure to the counterparty ÷ Capital base × 100

Compare it with the large-exposure limit in the regulations. The limit and the definition of capital base come from the text.

Core rule: IBU versus DBU

IBU = IFSCA-regulated, separate books, foreign currency, non-resident treatment; DBU = RBI-regulated, domestic business

Do not mix the two sets of books or regulators in your answer.

Net worth (general working)

Net worth = Paid-up equity capital + Free reserves − Accumulated losses − Intangible assets

This is the usual way to compute net worth. Use the definition given in the Regulations if it differs. Compare the result with the minimum prescribed and state whether the condition is met.

Compliance test for net worth

Compliant only if Net worth ≥ Minimum net worth prescribed by IFSCA

The test applies at registration and must be maintained on a continuing basis. A fall below the minimum is a breach that must be addressed.

Answer structure for any question

Regulator → Entity type → Eligibility → Registration → Net worth → Permitted activities → Operating norms → Conclusion

Use this order in every case-based answer so that no element is missed.

Source of authority

IFSCA Act, 2019 → IFSCA (Finance Company) Regulations, 2021 → Directions and circulars of IFSCA

Cite the Act as the parent law, the Regulations as the main rule, and circulars for later changes.

Leasing structure

Lessor (IFSC finance company) owns asset → lessee uses asset → lessee pays lease rental

Ownership stays with the lessor. Only use passes to the lessee. Describe an operating lease and a finance lease separately if the question asks.

Regulating instrument

IFSCA Act, 2019 → IFSCA (Finance Company) Regulations, 2021 → IFSCA leasing frameworks and circulars

Quote them in this order, from the Act down to circulars. Give the Act's year, 2019, and the Regulations' year, 2021, correctly.

Answer sequence

Permission → entity and capital → permitted activity → counterparties and currency → reporting → incentives → other laws

Use this as a checklist for any leasing question. Take thresholds and figures only from the current text.

Incentive rule

Incentive available = unit is in IFSC + activity is eligible + statutory conditions are met

Never say a tax benefit is automatic. State the conditions.

Regulator

Sandbox, payment services and GIC activity in an IFSC → regulated by IFSCA

Write that IFSCA is the single regulator for these activities in the IFSC.

Sandbox logic

Application → admission → limited testing → exit or full authorisation

Testing is limited in time, scope and customers, under IFSCA oversight. Confirm the exact limits in the text.

Payment service provider rule

No authorisation → no payment services in IFSC

Authorisation, eligibility, customer fund safeguards and reporting are the standard points to cover.

GIC rule

GIC = in-house services for group entities, not the general public

Use this one line to separate a GIC from a service provider or intermediary.

Supervision chain

Information/inspection → directions → penalty or other enforcement action

Use it to end any answer on compliance or non-compliance.

Quick revision

• An IBU is a banking unit set up in the IFSC by a bank, and it works under IFSCA rules, not as an ordinary domestic branch.
• For every regime, answer in this order: who can apply, what is permitted, what capital is needed, what compliance follows.
• Prudential norms are about keeping the entity sound: capital, liquidity, exposure and risk limits.
• Always check the exact capital or net worth figure in the current regulation before writing it.
• A finance company in the IFSC must be authorised by the IFSCA before it starts its permitted activities.
• Do not apply domestic RBI or NBFC rules to an IFSC entity unless the IFSCA text says so.
• Aircraft and ship leasing is a specific regulated activity with its own eligibility and compliance conditions.
• Fintech and other financial services follow IFSCA frameworks that can include a regulatory sandbox approach.
• Reporting and ongoing compliance are part of the answer, not an add-on.
• In case questions, end with a clear conclusion and the practical next steps for the entity.
• Use the latest amended regulation text, as older versions may differ.
• Tag key regulations in your open book copy for quick access.

Common mistakes

• Saying RBI licenses an IBU. Fix: Write that IFSCA licenses IBUs. RBI or the home regulator only gives approval to its own bank to go ahead.
• Treating an IBU as a separate company. Fix: State that an IBU is a unit of the bank in the IFSC. Check the regulations if the question mentions another structure.
• Treating the IBU as regulated by RBI. Fix: Say that the IBU is regulated by IFSCA under its banking regulations. RBI regulates the parent bank's domestic business.
• Quoting capital figures or ratio thresholds from memory. Fix: Use the current IFSCA text, since the elective is open book. If you are unsure, state the rule and say the figure is as prescribed.
• Treating a finance company in the IFSC as regulated by the RBI like an NBFC. Fix: State that IFSCA is the regulator and the IFSCA Regulations apply. Mention the RBI or domestic NBFC rules only for contrast.
• Quoting a net worth figure from memory and getting it wrong. Fix: Take the figure from the current Regulations in the open book paper. Write the clause and show the working so that method marks are safe.
• Treating leasing as a banking activity of an IBU. Fix: Remember that leasing is a finance company activity under the Finance Company Regulations, not a banking unit activity.
• Saying the lessee becomes the owner of the aircraft or ship. Fix: State that the lessor keeps ownership. Only a clear transfer clause or a sale changes this.
• Treating the sandbox as a permanent licence. Fix: Say the sandbox is time-limited and controlled testing. Full authorisation is a separate step.
• Saying a global in-house centre can offer services to the public. Fix: A GIC serves group entities. State this in the first line of your answer.

Exam tips

• Open with the name of the regulations and the regulator. This earns easy marks in a written paper.
• In case questions, always say who must approve: the home regulator, IFSCA, or both.
• Use the order eligibility, licence, activities, compliance. Examiners look for a clear structure.
• In open-book papers, mark the permitted activities and licence conditions in the current text. Do not rely on old notes for figures.
• Link the answer to the facts given, such as the type of bank and the activity, and end with a firm conclusion.
• Because the elective is open book, mark the capital, prudential and reporting provisions in your copy of the regulations before the exam, and practise finding them quickly.
• In case questions, always name the regulator (IFSCA or RBI) first. It frames the whole answer and earns easy marks.
• Show ratio workings in steps. Even if the final number is wrong, method marks are possible.