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Fillip for offshore banking units

Mumbai, March 20: The Reserve Bank of India (RBI) has relaxed some of the norms regarding the setting up of offshore banking units (OBUs) in special economic zones (SEZs). These units have now been allowed to invest their surplus funds outside India and accept deposits from individuals.

The Reserve Bank has also allowed banks to set up more than one unit, but not in the same zone. According to the earlier norms, each of the eligible banks was permitted to establish only one offshore banking unit, which would essentially carry wholesale banking operations.

The Export Import Policy of 2002-03 had allowed setting up of OBUs in special economic zones. These units would be virtually foreign branches of Indian banks but located in India. They would also be exempted from the stipulations of cash reserve ratio (CRR) and statutory liquidity ratio (SLR) and would provide finances at international rates to SEZ units and developers.

While the central bank had consequently come up with detailed norms for setting up such units, banks had sought various clarifications from the RBI. Responding to these queries, the apex bank had said that banks have also urged for the removal of restriction on overseas lending by OBUs.

However, the RBI, turning down the request, had said that the issue will be reviewed later based on the performance of these units over a period of six months.

“It has now been decided that OBUs may be allowed to invest their surplus funds outside India under the investment policy framed for this purpose by the board of directors. It has also been decided to allow OBUs to accept deposits from individuals subject to observance of know your customer guidelines,” the RBI said in a circular.

Earlier, the apex bank had granted exemption from CRR requirement to the parent bank with reference to its OBU branch. It had also said that individual bank’s request for exemption from maintaining SLR will be considered for a specified period.

Offshore banking units have also been asked to follow the international practise of 90 days payment delinquency norm for income recognition, asset classification and provision. They will have to operate and maintain balance sheet only in foreign currency and would not be allowed to deal in Indian rupees, except for having a special rupee account out of convertible fund to meet their day to day expense.

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