In a reform, RBI allows foreign banks in India to deal in instruments not expressly permitted by it, without needing its consent

2 Dec 2022 , 08:30 AM

The Reserve Bank on Thursday authorized international branches and subsidiaries of Indian banks to transact in financial products that are not expressly allowed in the local market, subject to certain conditions.

A framework is required, according to an RBI circular, to allow them to engage in activities that are not expressly permitted in the Indian domestic market. The RBI circular also specifies the International Financial Services Centers (IFSCs) in India, such as Gujarat International Finance Tec-City, to which these instructions apply.

It stated that without the Reserve Bank’s previous consent, “the international branches/foreign subsidiaries of Indian banks/AIFIs can deal in financial goods, including structured financial products, which are not available or are not approved by the Reserve Bank in the domestic market…

All India Financial Institutions (AIFIs) and their branches operating in IFSCs, including those based in GIFT City, have been granted a similar authorization.

The Reserve Bank of India (RBI) outlined the requirements for dealing in financial products and stated that banks and AIFIs will need to make sure that these branches and subsidiaries don’t deal in products tied to the Indian Rupee unless specifically authorized by the Reserve Bank.

Additionally, according to the RBI, the financial products handled by foreign branches, subsidiaries, and IFSCs will be subject to prudential standards like capital adequacy, exposure standards, periodic valuation, and all other applicable standards.

It said, “Parent Bank shall comply with more stringent host and home legislation in respect of prudential requirements.”

The RBI further stated that unless specifically exempted by law, the operations of branches and subsidiaries in foreign countries and IFSCs would be governed by Indian law.

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