International Financial Services Centre (IFSC)

International Financial Services Centre (IFSC)

OPTIONAL PAPER-2 FINANCIAL INSTITUTION

• An IFSC caters to customers outside the jurisdiction of the domestic economy. Such centres deal with flows of finance, financial products and services across borders. London, New York and Singapore can be counted as global financial centres. Many emerging IFSCs around the world, such as Shanghai and Dubai, are aspiring to play a global role in the years to come.
• An expert panel headed by former World Bank economist Percy Mistry submitted a report on making Mumbai an international financial centre in 2007. However, the global financial crisis that unfolded in 2008 made countries including India cautious about rapidly opening up their financial sectors.
• Finance Minister Arun Jaitley, had announced in the Union Budget 2015 that India's first IFSC's would be set up in GIFT City in Gujarat.
• Gujarat International Finance Tec-City (GIFT City) would be the country's first IFSC, with which top bourses BSE and NSE signed MOUs for setting up International exchanges there. However, BSE already started India International exchange on January 9, 2017.

Services @ IFSC 

• Fund-raising services for individuals, corporations and governments
• Asset management and global portfolio diversification undertaken by pension funds, insurance companies and mutual funds.
• Wealth management.
• Global tax management and cross-border tax liability optimization, which provides a business opportunity for financial intermediaries, accountants and law firms.
• Global and regional corporate treasury management operations that involve fund-raising, liquidity investment and management and asset-liability matching
• Risk management operations such as insurance and reinsurance.
• Merger and acquisition activities among trans-national corporations

IFSC in SEZ 

• Definition of IFSC as per SEZ Act: As per Section 2 (q) of SEZ Act, 2005, "International Financial Services Centres" means an International Financial Services Centre which has been approved by the Central Government under sub-section (1) of Section 18 of SEZ Act, 2005.
• As per Sub section (1) of Section 18 of SEZ Act, 2005, The Central Government may approve the setting up of an International Financial Service Centre in a Special Economic Zone and may prescribe the requirements for setting up and operation of such centre. Provided that the Central Government shall approve only one International Financial Services Centre in a Special Economic Zone.
• As per Sub section (2) of Section 18 of SEZ Act, 2005, The Central Government may, subject to such guidelines as may be framed by the Reserve Bank, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority and such other concerned authorities, as it deems fit, prescribe the requirements for setting up and the terms and conditions of the operation of Units in an International Financial Services Centre. Accordingly Securities board of India has recently issued guidelines dated 27.03.2015 named as SEBI (International Financial Services Centres) Guidelines, 2015
• SEBI (International Financial Service Centres) Guidelines, 2015 has been issued to facilitate and regulate financial services relating to securities market in an International Financial Services Centre set up under section 18 (1) of SEZ Act, 2005
• Such guidelines will facilitate setting up and operations of units in country's first IFSC at GIFT City, Gujarat.
• SEBI (International Financial Service Centres) Guidelines, 2015 shall come into force w.e.f April 01, 2015
• Replace as: RBI would permit the setting up of IFSC Banking units (IBUs) in International Financial Services Centres (IFSC) by banks in accordance with RBI regulations relating to Financial Institutions issued vide notification no. FEMA.339/2015 - RB dated March 02, 2015.
• IRDA of India would allow Life and Non-life Insurance services, health Insurance services and reinsurance services to set up a branch in IFSC.
• Such guidelines would be referred to as Insurance Regulatory and Development Authority of India (International Financial Services Centre) Guidelines, 2015.
• Insurance Regulatory and Development Authority of India (International Financial Services Centre) Guidelines, 2015 shall come into force w.e.f. April 06, 2015.

Fiscal Incentives available under SEZ Act 2005 for IFSC units

• Since India has many restrictions on the financial sector, such as partial capital account convertibility, high SLR (statutory liquidity ratio) requirements and foreign investment restrictions, an SEZ can serve as a testing ground for financial sector reforms before they are rolled out in the entire nation.
• Exemption as per SEZ Act, 2005: Apart from SEZ related incentives as per the SEZ Act, 2005 there is an exemption from the securities transaction tax leviable under section 98 of the Finance (No. 2) Act, 2004 in case the taxable securities transactions are entered into by a non-resident through the International Financial Services Centre.

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