The Reserve Bank of India (RBI) has allowed foreign branches/foreign subsidiaries of Indian banks and All India Financial Institutions (AIFIs) to deal in financial products, including structured financial products, that are not available or are not permitted by it in the domestic market without its prior approval.
The aforementioned relaxation is applicable to Indian Banks and AIFIs operating in foreign jurisdictions and in International Financial Services Centers (IFSCs) in India including Gujarat International Finance Tec-City (GIFT City).
Subject to compliance of regulations
The RBI, however, said its instructions in this regard is subject to compliance with all applicable laws/regulations and conditions, and those prescribed by the host regulator.
While allowing branches/subsidiaries in foreign jurisdictions as well as in IFSCs to deal in such products, the parent bank in India/AIFI has to ensure prior approval from its Board and, if required, the appropriate authority in the concerned jurisdictions.
RBI said entities dealing in such products need to have adequate knowledge, understanding and risk management capability, and they can act as market makers for products only if they have the ability to price/value them and the their pricing is demonstrable at all times.
The central bank asked entities to appropriately capture and report to it their exposure and mark-to-market (MTM) on these products.
RBI said branches/subsidiaries of Indian banks in foreign jurisdictions as well as in IFSCs cannot deal in financial products linked to Indian Rupee unless specifically permitted by it and they cannot accept structured deposits from any Indian resident.
The financial products dealt by the foreign branches and subsidiaries as well as IFSCs will attract the prudential norms such as capital adequacy, exposure norms (including Large Exposure Framework), periodical valuation, and all other applicable norms.