Search the Internet          Tips  Sites: Finance, Investment

RBI restricts rupee deals by offshore banks

Sidhartha in New Delhi

The Reserve Bank of India has decided to bar individuals from banking with offshore banking units to be set up in special economic zones.

The OBUs will be allowed direct dealing only in foreign currency.

RBI has prescribed a minimum contribution of $10 million by the parent bank to its OBU for starting operations.

Public sector, private and foreign banks, authorised to deal in foreign exchange would be eligible to set up OBUs but those with overseas branches and experience in running OBUs would be accorded preference.

Each eligible bank would be permitted to establish only one such unit, which would essentially carry out wholesale banking operations.

The eligible banks would have to seek a licence from RBI to set up OBUs. The eligible banks would have to seek a licence from RBI to set up OBUs. The government will decide on the SEZs where OBUs will be permitted.

According to the scheme for setting up OBUs, prepared in consultation with the commerce and industry ministry, OBUs would also be barred from participating in domestic call money market.

The deployment of funds would be restricted to SEZ units and developers and in case of lending to residents in the domestic tariff area, existing exchange control regulations would apply to the beneficiaries in DTA.

OBUs would need to undertake their rupee dealings in the DTA through authorised dealers, which would be subject to exchange control regulations.

OBUs would also be maintain their balance sheet only in foreign currency and will not be allowed to deal in rupees, except for having a special rupee account out of convertible fund to meet their day to day expenses.

RBI has also decided to keep the deposits accepted by OBUs out of the ambit of the deposit insurance scheme.

In this year's Exim Policy, the then Commerce and Industry Minister Murasoli Maran had announced the setting up of OBUs to help units in SEZ and developers of these areas to avail of credit at lower interest rates.

RBI, which was asked to prepare the scheme, has decided to exempt banks from the provisions of cash reserve ratio and has also said that it would consider granting exemptions to banks from compliance with statutory liquidity ratio in case a need arises.

The sources for raising foreign currency funds would, however, only be external. In case of funds residents, the amount would be restricted to the prevailing levels in the exchange control regulations for residents to invest or maintain in foreign currency accounts.

Powered by

ALSO READ:
Monetary & Credit Policy 2002-2003
More Money Headlines