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Offshore unit gets going

Mumbai, July 17: State Bank of India’s (SBI) offshore banking unit (OBU) opened to a rousing start with the bank lending around $ 8 million on the first day. The country’s first OBU hopes to make a profit of $ 2 million in the first year, SBI chairman A. K. Purwar said today.

The bank plans to set up three more OBUs at Kandla, Kochi and Surat. SBI has pumped in $ 10 million as capital into the unit.

The OBU will bring all the benefits available to businesses operating at foreign locations within easy reach of domestic exporters.

These units are virtual foreign branches of Indian banks located in India and will be exempt from cash reserve ratio and statutory liquidity ratio requirements. They will provide SEZ units and SEZ developers with finances at international rates.

State Bank said that the OBU will provide low-cost funds in various foreign exchange currencies, customised hedging assistance for interest and exchange risks and competitive pricing for loans and services.

Purwar said the OBU would help exporters to avail of banking services of a global kind. He added that this was necessary in keeping with the competitive global environment which calls for a level playing field for the exporting community.

SBI officials said that the bank’s presence at SEZs coupled with its foreign network would improve the customers reach.

The RBI has recently asked these offshore units to follow the international practice of 90 days payment delinquency norm for income recognition, asset classification and provision.

The central bank added that the units would have to operate and maintain balancesheets only in foreign currency. These branches cannot participate in domestic money market.

Bankers point out that many more commercial banks are likely to set up such OBUs in the days to come. ICICI Bank had yesterday announced that it has received an approval to set up an OBU.

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