IFSCA - Regulations, Listing and Compliances · Banking Services and Finance Companies in IFSC

Capital, Prudential Norms and Compliance for IFSC Banking Units

Updated 11 October 2026 · Fact-checked

An IFSC Banking Unit (IBU) is a bank branch or unit in GIFT IFSC that is regulated by IFSCA, not RBI. It must hold the minimum capital set in the IFSCA banking regulations, follow prudential and risk norms on capital, liquidity and exposures, and file returns. In answers, state the rule, apply the facts, then conclude.

Understand Capital, Prudential Norms and Compliance for IBUs

An IFSC Banking Unit (IBU) is a unit of an Indian or foreign bank set up in an International Financial Services Centre such as GIFT City. It does banking business mainly in foreign currency. The regulator for this business is the International Financial Services Centres Authority (IFSCA), under the IFSCA (Banking) Regulations, 2020.

Three ideas hold the topic together. First, capital: the bank must put in a minimum amount of capital for the IBU and keep it intact. Second, prudential norms: rules that keep the IBU safe, covering capital adequacy, liquidity, large exposures, asset classification and provisioning, and risk management. Third, compliance: the IBU must keep proper books, file returns, report to IFSCA and its head office, and meet anti-money laundering and customer-due-diligence duties.

It helps to compare an IBU with a domestic banking unit (DBU). A DBU is the bank's normal Indian business, regulated by RBI, mostly in rupees, and subject to the Indian reserve requirements. An IBU runs on separate books, mostly in foreign currency, and is regulated by IFSCA. For foreign exchange purposes it is generally treated as a person resident outside India. Many exam questions test exactly this separation.

The exact minimum capital figures, ratio thresholds and return formats sit in the regulations and IFSCA circulars, and they are amended from time to time. Because the elective is open book, learn the structure and the logic. Then read the numbers from the current text during the exam, and do not rely on memory for them.

Key rules to remember

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.

How to solve Capital, Prudential Norms and Compliance for IBUs questions

Use this order for any theory or case question on IBU capital, prudential norms or compliance. It matches the provision, analysis, conclusion pattern that examiners reward.

1Identify the type of question: capital, a specific prudential norm, reporting, or a comparison with a DBU.
2Name the governing instrument: the IFSCA (Banking) Regulations, 2020, IFSCA circulars and, where relevant, the IFSCA Act, 2019.
3State the rule in plain words with its conditions: who must comply, what the requirement is, and what the threshold is. Read the threshold from the text.
4Apply the rule to the facts, line by line. Do the arithmetic when ratios are given.
5Check the regulator and currency angle: is the activity an IBU activity under IFSCA, or a DBU activity under RBI?
6Add practical points: board approval, head-office support, records, returns, and who signs the compliance certificate.
7Write a clear conclusion that answers the exact question, and add the consequence of non-compliance, such as IFSCA directions or penalties.

Quickest way: Four-box answer frame

When to use it: Use this when time is short, especially in the last 20 minutes or on a 5 to 8 mark question.

Box 1, Capital: minimum capital and whether it is maintained.
Box 2, Prudence: capital adequacy, liquidity, exposure limits, asset quality and risk management.
Box 3, Reporting: books, returns, audit and notices to IFSCA and head office.
Box 4, Conduct: anti-money laundering, customer due diligence and permitted business only.
Write one or two lines per box, then add the conclusion tied to the facts.

Common mistakes in Capital, Prudential Norms and Compliance for IBUs

Treating the IBU as regulated by RBI.
The IBU belongs to an Indian bank, so students assume RBI rules apply to it directly.
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.
Students memorise numbers that may have been amended or that belong to domestic banks.
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.
Mixing IBU and DBU books and business.
The two units share a parent, a name and often premises.
Fix: Keep separate books and currency treatment in every answer. Show that IBU funds and activities are not blended with domestic operations.
Listing norms without applying them to the facts.
Students recall a list and write it out, as in a theory paper.
Fix: Choose only the norms the facts raise, and link each to a fact. Then conclude on compliance or breach.
Ignoring reporting and ongoing compliance.
Capital and ratios feel more important than filing and records.
Fix: Always include returns, audit, record-keeping and anti-money laundering duties, because compliance is the focus of the topic.
Getting the ratio calculation wrong.
Students divide by total assets instead of risk-weighted assets, or forget to multiply by 100.
Fix: Write the formula first. For CRAR, divide eligible capital by risk-weighted assets, then multiply by 100.

Worked examples

Example 1

An IBU has eligible capital of USD 30 million and risk-weighted assets of USD 200 million. Assume the minimum capital adequacy ratio prescribed in the question is 9%. Compute the CRAR and state whether the IBU is compliant and by how much capital it exceeds the requirement.

Show the solution

Formula: CRAR = Eligible capital ÷ Risk-weighted assets × 100.
CRAR = 30 ÷ 200 × 100 = 15%.
Compare with the minimum: 15% is higher than 9%, so the IBU meets the requirement.
Capital required at 9% = 9% × USD 200 million = USD 18 million.
Surplus capital = USD 30 million − USD 18 million = USD 12 million.
Add a practical point: the IBU should report the ratio in its periodic returns and keep a buffer for growth in risk-weighted assets.

Answer: CRAR is 15%. It is above the assumed 9% minimum, so the IBU is compliant, with surplus eligible capital of USD 12 million.

Example 2

The head office of an Indian bank proposes to use the funds of its IBU in GIFT City to fund rupee loans to Indian retail borrowers through its domestic branches, and to record them in the IBU's books. Advise the board.

Show the solution

Provision: an IBU is a unit regulated by IFSCA that conducts permitted banking business in the IFSC, mainly in foreign currency, under the IFSCA (Banking) Regulations, 2020. It keeps separate books and is generally treated as a non-resident for foreign exchange purposes.
Analysis: the proposal makes IBU funds do domestic rupee retail lending. That is DBU business, regulated by RBI. Recording it in the IBU's books would blur the separation between the two units.
Prudential angle: IBU exposures are measured and reported under IFSCA norms. Mixing domestic exposures would distort capital adequacy, large-exposure and liquidity measures.
Compliance angle: the IBU's returns to IFSCA must show only permitted IFSC business. The proposal risks a breach and regulatory action.
Conclusion: the board should not approve the proposal. Domestic rupee lending should be done by the DBU from its own funds and books. The IBU should stay within its permitted business, with approved dealings with the DBU kept at arm's length and documented, as the rules allow.

Answer: The board should reject the proposal. It would breach the separation between the IFSCA-regulated IBU and the RBI-regulated DBU, and it would distort the IBU's prudential reporting.

Exam tips

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.
Use the headings Capital, Prudence, Reporting and Conduct in long answers. They keep the answer structured and complete.
For comparison questions, such as IBU versus DBU, write points in pairs: regulator, currency, books, customers and treatment under foreign exchange law.

Practice questions from Banking Services and Finance Companies in IFSC

Capital, Prudential Norms and Compliance for IBUs: frequently asked questions

What is the difference between an IBU and a domestic banking unit?

An IBU operates in the IFSC, is regulated by IFSCA, and deals mainly in foreign currency on separate books. A DBU is the bank's regular Indian business regulated by RBI. For foreign exchange purposes an IBU is generally treated as a non-resident.

Do I need to memorise IBU minimum capital figures for the exam?

No. The elective is open book, so you can read the figure from the current IFSCA text. Learn what the requirement is for, how it is maintained and what happens on a breach, and then apply the figure given in the question.

Which prudential norms apply to an IBU?

The main areas are capital adequacy, liquidity, large exposure limits, asset classification and provisioning, and risk management. The IFSCA regulations and circulars set the details, and they follow international banking standards such as Basel.

What ongoing compliance does an IBU have?

An IBU keeps separate books, files periodic returns with IFSCA, gets its accounts audited, and follows anti-money laundering and customer due diligence rules. It also keeps records and informs IFSCA of events it must report.