Money & Banking

Geopolitical tensions, expanded product basket seen attracting global financial entities to GIFT-IFSC

Rutam Vora Ahmedabad | Updated on August 07, 2020 Published on August 07, 2020

Tapan Ray, MD and Group CEO, GIFT City

International Financial Services Centre at GIFT City in Gandhinagar

Need to allow retail participation to jack up volumes and liquidity: Tapan Ray, MD

Geopolitical crisis in East Asia is set to unlock new opportunities for India’s first International Financial Services Centre (IFSC) located at GIFT City in Gandhinagar. The GIFT-IFSC is aggressively moving to prepare itself to provide a soft landing to the global financial giants on Indian soil.

According to top official at GIFT-IFSC, geopolitical changes around the world, coupled with its own efforts to bring more products with larger number of participants, will help it make the leap.

“Geopolitical issues in East Asia... at Hong Kong, where a major tectonic shift is taking place, and tensions around US-China relations will offer us an opportunity to get some of the services. After these happenings, we have got interests from foreign banks to set up IFSC Banking Units (IBUs) at GIFT-IFSC. Setting up of IBUs by foreign banks is a signal that people are looking for alternatives,” Tapan Ray, MD and Group CEO, GIFT City, told BusinessLine.

GIFT-IFSC has covered a substantial ground in the past five years as all the 12 IBUs put together have conducted transactions of over $26 billion along with $30 billion of sum insured through insurance players and an average daily trading volume of $4 billion at the international exchanges. But this could just be a fraction of the potential that lies ahead.

More products in-line

“We have certain things like index-linked derivatives. But we need to do primary trading also and bring more products too. There must be a variety of products and participants that give the volume and liquidity to the market,” Ray said expressing the need for retail participation.

“Retail brings in big numbers — volumes, players, number of participants. That brings down the cost for banks and other entities working here,” he said adding that in order to capitalise on the latest opportunity arising from geopolitical tensions there is a need to bring changes all in one-go instead of following an incremental approach. “For established players, shifting their operations to a new location will need substantive advantage and benefits. We have to create an ecosystem and provide a level-playing field which is at par with — if not better than — the existing ones (IFSCs). Fortunately, the Union Government has taken several initiatives and created the IFSC Authority and very strategically positioned it in GIFT City. That is a big signal to the international community that the Government means business,” he said.

International Bullion Exchange

One more growth driver for GIFT-IFSC will be the bullion exchange, which was announced by the Union Finance Minister in the Budget in February 2020. The modalities for the structure and products for country’s first International Bullion Exchange are underway and will open the doors for India to enter an exclusive club of bullion trading nations.

“Bullion exchange will be a game changer (for GIFT City). Entire bullion/gold value chain starting from importers, refinement, storage, further onward sales in domestic areas will be developed. We are working with all the stakeholders — retailers, wholesalers, bankers (to consider their interests) — as there will be a transparent price discovery mechanism,” Ray said, adding that the IFSC Authority will draft the regulations, which will decide the structure of the bullion exchange.

The first task will be to define the ‘spot exchange gold trade’, which isn’t regulated currently. A process for the same has been initiated at the highest level to categorise the ‘trading in bullion’ as a financial product under the International Financial Services Authority Act, 2019. Discussions for roping-in experienced foreign players as partners for the exchange are also on.

One year outlook

The next one year is seen crucial for GIFT-IFSC as it is expected to bring more clarity on the regulation aspect with the IFSC Authority becoming fully functional. Exchanges and banks have lined up different products to offer.

“In less than a year, we will have most of the critical regulations in place. And most of the inter-regulatory issues will hopefully be ironed out. GIFT would be on a faster growth trajectory,” Ray said.

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Published on August 07, 2020
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