Module: | MODULE A: INTERNATIONAL BANKING
Q211: Consider the following statements regarding the establishment and capitalization of an International Financial Services Centre Banking Unit:
Statement 1: Both Indian banks and foreign banks that already maintain a banking presence in India are eligible to establish a Banking Unit within the centre.
Statement 2: The parent bank of the Banking Unit is legally mandated to provide and continuously maintain a minimum regulatory capital of 20 million United States Dollars, or its equivalent in any freely convertible foreign currency, to sustain operations.
Statement 2: The parent bank of the Banking Unit is legally mandated to provide and continuously maintain a minimum regulatory capital of 20 million United States Dollars, or its equivalent in any freely convertible foreign currency, to sustain operations.
✅ Correct Answer: C
The regulatory guidelines for banking units define strict entry and capital norms to ensure systemic stability.
Statement 1 is correct as both eligible Indian banks and established foreign banks are permitted to set up a Banking Unit as a branch to conduct offshore banking activities.
Statement 2 is correct because the parent bank must allocate and continuously maintain a minimum regulatory capital of 20 million United States Dollars, or an equivalent amount in another freely convertible foreign currency, at the branch level.
This ensures the unit has adequate standalone financial backing to engage in cross-border lending, derivative trading, and other wholesale banking activities without exposing the domestic financial system to undue risk.
Statement 1 is correct as both eligible Indian banks and established foreign banks are permitted to set up a Banking Unit as a branch to conduct offshore banking activities.
Statement 2 is correct because the parent bank must allocate and continuously maintain a minimum regulatory capital of 20 million United States Dollars, or an equivalent amount in another freely convertible foreign currency, at the branch level.
This ensures the unit has adequate standalone financial backing to engage in cross-border lending, derivative trading, and other wholesale banking activities without exposing the domestic financial system to undue risk.