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

Bharat Bank Ltd, an Indian scheduled commercial bank, sets up an International Banking Unit (IBU) at GIFT IFSC. Which statement correctly describes how the IBU is treated for capital purposes under the IFSCA Banking Regulations?

An IBU is a unit of the parent bank, not a separate company, yet IFSCA requires the parent to allocate prescribed minimum capital to it, held in foreign currency in the IFSC. It cannot start operations without this, and it is not exempt merely because clients are non-residents.

  1. AThe IBU is a branch of the parent bank and does not need a separately allocated capital by IFSCA to begin operations
  2. BThe IBU must hold capital allocated by the parent bank in the form prescribed by IFSCA and maintained in the IFSC in foreign currencyCorrect
  3. CThe IBU must be incorporated as a separate subsidiary company with its own share capital in rupees
  4. DThe IBU is exempt from any capital requirement because it deals only with non-residents

Explanation

An IBU is a unit or branch of the parent bank and is not a separate company, but IFSCA requires the parent to assign capital to it, to be maintained as per the regulations. Option 0 ignores this requirement. Option 2 is wrong as a subsidiary is not required for an IBU, and the IBU operates in foreign currency, not rupees.

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