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

IFSC Banking Framework and IFSC Banking Units (IBUs)

Updated 11 October 2026 · Fact-checked

An IFSC Banking Unit (IBU) is a banking presence set up in GIFT IFSC by an eligible Indian or foreign bank, licensed by IFSCA under the IFSCA (Banking) Regulations, 2020. It deals mainly in foreign currency with non-residents and permitted persons. To answer questions, state eligibility, licensing steps, permitted activities, then apply them to the facts.

Understand IFSC Banking Framework and Banking Units (IBUs)

GIFT City is India's International Financial Services Centre. Banking there is treated as an offshore activity inside India. The aim is to let banks serve global clients in foreign currency without the onshore rules that apply to domestic banking.

The IFSCA (Banking) Regulations, 2020 are the main rulebook. They are made by the International Financial Services Centres Authority under the IFSCA Act, 2019. Before IFSCA existed, IBUs ran under RBI guidelines. Now IFSCA is the single regulator for licensing and supervising IBUs in the IFSC.

An IFSC Banking Unit (IBU) is a unit of a bank that is set up in the IFSC to carry on banking business permitted by the regulations. It can be a branch of an Indian bank, or of a foreign bank. It is a separate business unit. Its books and operations are kept apart from the parent bank's domestic business.

The flow of the law is simple. First, who may apply (eligible banks with home regulator approval). Second, how the licence is granted (application, fee, IFSCA satisfaction on fit and proper and other conditions). Third, what the IBU may do (accept deposits, lend, trade finance, treasury and other permitted products, mainly in foreign currency). Fourth, ongoing duties (compliance, reporting, supervision by IFSCA).

Exact capital figures, fees and lists of activities are in the regulations and their amendments. In an open-book paper, read the current text. In a closed-book answer, give the structure and principle, and do not guess numbers.

Key rules to remember

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.

How to solve IFSC Banking Framework and Banking Units (IBUs) questions

Use the same sequence for every question on IBUs. It keeps your answer in the provision, analysis, conclusion format.

1Identify the entity: Indian bank, foreign bank, or another type of entity. Note its home regulator.
2State the law: IFSCA (Banking) Regulations, 2020 under the IFSCA Act, 2019.
3Check eligibility and approvals: home regulator permission and IFSCA licence conditions.
4List the licensing steps: application in the prescribed form, fee, documents, and IFSCA's decision.
5Test the proposed activity against the permitted business of an IBU, and note currency and customer type.
6Apply to the facts: say what is allowed, what needs prior permission, and what is barred.
7Give a clear conclusion and add practical compliance points such as records, reporting and a compliance officer.

Quickest way: Four-line IBU answer

When to use it: Use for short-note questions or when time is under pressure.

Line 1: define IBU and name the Regulations of 2020 made by IFSCA.
Line 2: eligibility and licence in one sentence, including home regulator approval.
Line 3: permitted activities in one sentence, stressing foreign currency and the IFSC focus.
Line 4: ongoing compliance and IFSCA supervision, then stop.

Common mistakes in IFSC Banking Framework and Banking Units (IBUs)

Saying RBI licenses an IBU.
Students link banks with RBI and forget IFSCA's role.
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.
The word 'unit' is mixed up with a subsidiary.
Fix: State that an IBU is a unit of the bank in the IFSC. Check the regulations if the question mentions another structure.
Quoting capital amounts or fees from memory.
Students memorise numbers from notes that may be outdated.
Fix: Give the principle that prescribed capital and fees apply. Quote a figure only if you are sure from the current text.
Applying onshore banking rules to IBU business.
Students assume the Banking Regulation Act framework applies the same way in the IFSC.
Fix: Say that the IFSC regime is designed for offshore, mainly foreign currency business under IFSCA's rules.
Writing only theory in a case question.
The paper is case-based, but students list provisions without linking to facts.
Fix: After each rule, write one line applying it to the named bank and activity, then conclude.

Worked examples

Example 1

Sundaram Bank Ltd, an Indian scheduled bank, wants to start banking operations in GIFT City. Advise on the legal route and the basic steps.

Show the solution

Provision: banking in the IFSC is governed by the IFSCA (Banking) Regulations, 2020 made under the IFSCA Act, 2019. IFSCA is the licensing authority.
Analysis of eligibility: Sundaram Bank is an Indian bank. It must have approval from its home regulator, the RBI, and must meet the conditions in the regulations.
Analysis of procedure: it applies to IFSCA in the prescribed form with the fee and documents. IFSCA examines the application and grants a licence if satisfied.
Structure: the operation will be an IBU, which is a separate business unit of the bank in the IFSC.
Practical points: prepare board approval, RBI approval, a business plan, and appoint officers for compliance and reporting.

Answer: Sundaram Bank should obtain RBI approval and apply to IFSCA under the IFSCA (Banking) Regulations, 2020 for a licence to set up an IBU. It can start IFSC banking business only after the licence is granted and conditions are met.

Example 2

An IBU of a foreign bank in GIFT City proposes to offer retail rupee savings accounts to resident Indian households. Is this permissible?

Show the solution

Provision: an IBU is set up to carry on banking business permitted by the IFSCA (Banking) Regulations, 2020. Its business is mainly in foreign currency and in the IFSC context.
Analysis: the proposal is a domestic retail rupee product. This is the type of onshore business that the IFSC regime is not designed for.
Check: confirm the current text of the regulations and any IFSCA permission before concluding. Any exception must be found in the regulations, not assumed.
Conclusion with compliance point: the IBU should not offer the product unless the current regulations clearly permit it. It should seek clarification from IFSCA before launch.

Answer: As a general rule, this is not permissible. An IBU operates as an offshore unit mainly in foreign currency. Retail rupee savings for resident households would need express permission under the regulations, which should be checked first.

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.

Practice questions from Banking Services and Finance Companies in IFSC

IFSC Banking Framework and Banking Units (IBUs) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

IFSC Banking Framework and Banking Units (IBUs): frequently asked questions

What are the IFSCA (Banking) Regulations, 2020?

They are regulations made by IFSCA under the IFSCA Act, 2019 to govern banking in the IFSC. They cover eligibility, licensing, permitted business and ongoing compliance for IBUs. Always read the latest amended text.

What is an IFSC Banking Unit (IBU)?

An IBU is a unit of an eligible bank set up in the IFSC to carry on banking business permitted by the regulations. It mainly deals in foreign currency. It works as a separate business unit from the parent bank's domestic operations.

How do you set up an IBU in GIFT City?

An eligible bank first gets approval from its home regulator, such as RBI for an Indian bank. It then applies to IFSCA with the prescribed form, fee and documents. IFSCA grants a licence if it is satisfied that the conditions are met.

Who regulates IBUs, RBI or IFSCA?

IFSCA is the regulator for IBUs in the IFSC. The parent bank still answers to its home regulator for its wider business. Both views matter in a case question.