Markets have been telling us about the development of an international-style instant foreign exchange settlement system in GIFT City. What is happening on the ground?Having a foreign currency settlement system (FCSS) for the IFSC has been a long-standing demand for market participants. Similar systems exist in major IFCs, most notably the Hong Kong Clearing House Automated Transfer System for settling US dollar and euro transactions. An FCSS system is being set up in the IFSC with the support of the RBI, along similar lines, which, in the first phase shall settle transactions between IBUs (IFSC banking units) in US dollars on a real-time or near-real-time basis. We are targeting for the system to be up and running by October 2024 at the latest. Other currencies may be added in due course. Once fully operational, the FCSS system will save IBUs both the time and cost of using the correspondent banking channel to settle transactions among themselves. For this purpose, the Clearing Corporation of India has set up a subsidiary in IFSC to act as the system operator for the FCSS. They are in discussions with Indian Financial Technology and Allied Services to provide the software solution for the FCSS. A settlement bank having direct membership of the RTGS (Real-Time Gross Settlement) system in the US is also being identified. We expect some other local IBUs from GIFT City to join as joint venture partners.
What are the new policy measures being considered to attract global businesses to GIFT City?
GIFT City started off with the premise of onshoring what is offshore. A lot of businesses focused on India almost entirely happen in the rest of the world.
We are working on several new policy measures including direct listing of Indian companies on IFSC exchanges. The new IFSCA listing regulations will be notified shortly, which will open new avenues for Indian companies including startups to raise global capital. One new area for employment generation is our BATF (Book-keeping, Accounting, Taxation and Financial Crimes Compliance Service) regulations, which will be notified in the next few weeks. This will open new avenues to provide global accounting and taxation business from IFSC in a cost-effective manner given India’s talent advantage.
What else can be done?
There are many, many NRIs probably who are sending money for various purposes but there are many who would like to diversify. They invest in the US stock markets, the Singapore stock markets, the Dubai stock markets, etc. So, we would want such kind of people to invest; we want to onshore that. That’s why we have created this platform so that people who want to come back to India can hold a part of their investments as dollars here as well, in terms of either capital market investments or bank savings.
Indians who work abroad also sometimes migrate globally. Creating the same foreign exchange savings pool in India provides them with portability in terms of insurance. For instance, suppose they were to subscribe to an insurance product in GIFT City – that gives them the portability of working anywhere while at the same time being insured in dollar terms.
We are also working on a pension product. Very shortly, maybe in the next three months, you will see the pension regulations also come out. There are nomination facilities available and there is portability. Wherever they are, they will save with their pension account here and when they come back here, all the money is theirs in a very simple cost-effective way.
Sebi recently allowed foreign funds at GIFT City to take in full investment from NRIs. On the policy front, how would enablers be put in place?
India has the unique advantage of a very vast, active, and wealthy diaspora across the world who not only bring pride to us through their success and achievements but also participate in the Indian economy’s growth story through their inward remittances and investments. As you may be aware, India continues to be the highest recipient of inward remittances for several years in a row. However, out of the total remittances, the amount towards equity investment is less than 10-12%.
The IFSCA has been engaging with Sebi and other authorities to facilitate greater participation of the Indian diaspora through GIFT IFSC in a manner which addresses various regulatory concerns. The IFSCA has already issued an enabling circular on May 2, 2024, to operationalise one of the two routes enabled by the Sebi board. We expect Sebi to announce the rest of the framework shortly.
You had referred to the issuance of a sovereign masala bond from GIFT City, while the RBI recently permitted foreign players in the IFSC to invest in sovereign green bonds. When could these be implemented?
The IFSCA already has the enabling regulatory framework in place (for a sovereign masala bond). The Government of India may take a call on this at an appropriate time.
With the objective of providing easier access for foreign investors, the RBI and IFSCA, along with the Government of India, have been working towards the operationalisation of investment and trading of sovereign green bonds at the IFSC. The IFSCA is working with the government and RBI towards the implementation of this scheme over the next three months. The objective is to enable new non-resident investors, who are not currently registered as FPIs (foreign portfolio investors), to participate in the primary auction and to facilitate trading and settlement in US dollars at the IFSC. Capital market infrastructure institutions at the IFSC, including depository and clearing corporations, by establishing a connect with RBI systems, will enable the holding of government securities and settlement of secondary market transactions at the IFSC. The availability of sovereign green bonds at the IFSC will also add impetus to the vibrant ESG-labelled debt securities issued and listed at the IFSC, which recently crossed $12 billion.
How have fund management activities evolved in GIFT City?
Fund management is one of the earliest success stories of the GIFT IFSC. We started with domestic regulations for fund management activities. Thereafter, the IFSCA carried out certain tweaks in the extant regulations to bring them more in sync with the global norms.
Since coming into effect in May 2022, these regulations have attracted more than 112 fund managers in the GIFT IFSC who have launched more than 125 schemes and have targeted to raise approximately $34.5 billion from investors. The fund managers in the IFSC have already deployed close to $4 Billion. We are closely monitoring the growth of this area and also creating supporting regulatory frameworks to further catalyse the pace, such as the introduction of an accredited investor framework which allows sophisticated investors to invest in IFSC funds without any minimum investment threshold.
We also hope to facilitate fund managers focussed on niche areas such as aviation and ship financing.
