The RBI has permitted IFSC banking units (IBUs) to engross in derivative transactions. This is to boost activity in international financial services Centre’s (IFSCs).
An IBU could potentially become the part of the exchange in an IFSC to trade in interest rate and currency derivatives. According to RBI, They can carry out derivative transactions which include structured products that can be undertaken by the banks in India after getting RBI’s approval for offering any other derivative products.
These Banks are considered as professional clearing member (PCM) of an IFSC exchange which has got the authority to clear and settle any derivatives segment. These units will be undertaking transactions with resident and non-resident units including individuals and HNIs / retail customers. They can act as underwriter / arranger of Masala Bonds issued by Indian entities in overseas market. Being PCM of derivatives segment, it assures trades executed by its clients as trading members of the exchanges. The Board in relation to the net worth of the bank will monitor the total exposure these PCMs would take on its registered clients. But, the IBU should not be assure any other transaction other than its work.
IBUs are also allowed to lengthen bank guarantees and short term loans to IFSC stock broking/commodity broking units. The IBU accepted fixed deposits from non-banks could not be repaid pre-maturely within the first year. The collateral fixed deposits from non-banks for credit from these banks can be adjusted prematurely on the event of non-repayment of the loan by the client.
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