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FIDC Suggests Relaxing Norms for NBFCs at GIFT IFSC

The representative body of NBFCs has argued in favour of making amendments to the RBI master circular of July 2014 dealing with the Opening of Branch/Subsidiary/Joint Venture/Representative office or Undertaking Investment Abroad by NBFCs

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The Finance Industry Development Council (FIDC), the umbrella body for non-banking financial companies (NBFCs) has urged the government that to make NBFCs operational at GIFT IFSC, there is a need to make amendments to the master circular of 1st July 2014 dealing with Opening of Branch/Subsidiary/Joint Venture/Representative office or Undertaking Investment abroad by NBFCs.  

What is GIFT IFSC? Gujarat International Finance Tec-City (GIFT) is India's first International Financial Services Centre (IFSC). An IFSC caters to customers outside the jurisdiction of the domestic economy. Such centers deal with flows of finance, financial products, and services across borders. In simpler terms, the GIFT IFSC will be a hub to bring offshore financial transactions onshore.   

So what are the amendments that FIDC is batting for in order to allow the NBFCs to become operational at GIFT IFSC? In a not, FIDC suggests that the master circular should be amended suitably so that the NBFCs are mandated to operate through IFSC, instead of having a foreign location. "This will help exponential growth of financial activities at IFSC and save the corporates’ huge establishment costs," it said. Then the FIDC suggests a few more amendments. For example, it said for all existing Indian NBFCs, 'NOC route should not be required' and they should be automatically grandfathered into IFSC.   

"The restriction on multi-layered and cross-jurisdictional structures under the Master Circular should not be applicable to NBFC operations in GIFT City," it added. Then the master circular specifies that all NBFCs should be profitable for at least 3-years preceeding to the date on which they wish to set-up an overseas entity. This the FIDC said "should not apply" to operations in GIFT City as the requirement is ensured by RBI under FEMA.  

Then the FIDC said that in the operating guidelines for an NBFC which is set up at IFSC the disclosure requirements to RBI at IFSC should be "at par with disclosure requirements sought internationally". Then the prudential norms (capital adequacy, concentration norms, etc.) should also be relaxed at IFSC vis-à-vis domestic tariff area, FIDC note said.   

The authorities should work at simplifying the fund transfer process between parent entity and IFSC entity and vice-versa subject to prudential norms on limits are assigned. FIDC is also batting for relaxed norms for NBFCs at GIFT IFSC when it comes to the deployment of funds. It said NBFCs should be allowed to deploy funds in infrastructure, leasing equipment (financial as well as operating), financing and leasing of aircrafts, including engines, other aircraft parts and helicopters, asset reconstruction, capital market – margin funding and housing re-financing amongst others. 

FIDC also suggested that the norms should be amended suitably to allow NBFC funds to be deployed for asset creation for India operations, IFSC operations and for operating overseas branches.  

Tags assigned to this article:
Finance Industry NBFC Sector GIFT IFSC