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OVERSEAS banking units proposed under the Exim Policy will not only help provide funds at international costs to units in the special economic zones (SEZs) but also will facilitate easy transactions of export deals, according to Mr Janki Ballabh, Chairman, State Bank of India.
Such branches will be able to open EEFC accounts of exporters and will function purely as a foreign branch of an Indian bank. The Reserve Bank of India is expected to announce detailed guidelines on setting up such branches.
According to the Exim Policy, these branches will be exempted from statutory requirements of CRR and SLR and will able to access FDI flows to the zone.
Though some bankers fear that the Government permitting "offshore banking'' may lead to money laundering, Mr Ballabh said these branches were expected to be set up under RBI guidelines and not operate like banks in tax havens.
In fact, the Exim Bank of India had suggested setting up of an offshore banking centre in Mumbai sometime ago, but it had not been accepted by the authorities.
"The relaxation of reserve requirements would make the cost of funds cheaper, so that these branches can finance units in the SEZs cheaply, which will help promote exports," said Mr P. Mukherjee, Vice-President, Treasury, UTI Bank.
"Having offshore branches in SEZs is a welcome move as they will attract a lot of funds and people can raise money at international rates. However, typically, offshore branches do not require a lot of transparency and disclosures. In India we are on the verge of passing a Bill on money laundering, so at a time like this one does not know how far this will work. Offshore branches must be in areas with a low tax regime. Although these branches will be treated as overseas branches, they may have to fulfil the transparency requirements. So it remains to be seen whether this will be a feasible proposition," said an official with a public sector bank.
Money laundering laws are becoming stringent throughout the world and India is no exception. Offshore branches are primarily to attract good money. The attraction here is that banks may not have to maintain CRR and SLR on deposits and so can offer finer rates to their customers. These branches will also be treated as overseas branches and may enjoy the tax exemptions etc that they do.
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