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Banks allowed to set up offshore units in SEZs

Mumbai, Nov. 12: With special economic zones (SEZs) closer to reality, the Reserve Bank of India today permitted banks to establish offshore banking units in the SEZs.

The apex bank said it would give preference to entities that already have experience in running overseas branches. This would mean that banks like State Bank of India, Bank of Baroda and Bank of India will be among the few to get a headstart when the SEZ concept crystallises in the country.

Several foreign banks are also expected to be in the fray. However, bankers say it is still early days as the SEZ as a concept has yet to see the light of the day in India.

So far, the Navi Mumbai SEZ, on the outskirts of Mumbai, is the only one that has reached some semblance of progress, attracting around 12 bidders. It is being touted not only as a manufacturing and software base but also as a financial centre.

The SEZs will have more liberal laws governing tax and labour to attract foreign direct investment. Today’s circular is timely as CIDCO and the government of Maharashtra are in the process of formulating a bidding process for aspirants seeking to develop the zone.

Several leading corporates including the Tatas, the Reliance group, Essar and The Chatterji Group have evinced interest in the ambitious project.

RBI today said all banks operating in India—whether public or private sector, as well as foreign banks—who are authorised to deal in foreign exchange, are eligible to set up offshore banking units.

Since the offshore banking units would be branches of Indian banks, no separate assigned capital would be required, RBI said in its circular.

However, to enable them to start operations, RBI has specified that the parent bank would be required to invest a minimum of $ 10 million.

However, the RBI has also added several strictures. These units would be required to strictly adhere to anti-money laundering instructions and they cannot undertake cash transactions with individuals.

Further, banks would be permitted to set up only one offshore unit to carry on wholesale banking operations, the RBI said. The parent bank would also be granted exemption from the cash reserve ratio (CRR) requirement with reference to its offshore banking branch.

Banks would be required to maintain a statutory liquidity ratio under Section 24 (1) of the Banking Regulation Act, 1949 in respect of their offshore branches.

However, in case of necessity, requests from individual banks for exemption would be considered for a specified period.

The exim policy for 2002-07 had announced setting up of offshore banking units in SEZs and the Reserve Bank accordingly formulated a scheme and obtained the approval of the government.

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