The International Financial Services Centers Authority ( IFSCA Official ) had introduced a detailed framework to regulate Finance Companies operating within GIFT City IFSC. This initiative aims to streamline processes, ensure regulatory compliance, and bolster investor protection. Here are the key elements of this framework.
Key Definitions
Finance Company: A financial institution, separately incorporated in IFSC, engaging in permissible activities as per the IFSCA Act, 2019, excluding public deposits and banking operations.
Finance Unit: A branch of a financial institution, not registered as a Banking Unit, undertaking activities specified in the FC Regulations, and fulfilling conditions regarding its incorporation, business, regulation, and No-Objection Certificate from the home regulator.
Structure of Eligible Entities
A Finance Company can be structured as a subsidiary, joint venture, or a newly incorporated company under the Companies Act, 2013, or in any other form specified by the Authority.
Permissible Activities
Core Activities:
Lending (loans, guarantees, securitisation, etc.)
Factoring and forfaiting of receivables
Investments in securities and other instruments
Buying or selling derivatives
Global/Regional Corporate Treasury Centres
Non-core Activities:
Operating leases (e.g., aircraft, ship, equipment)
Activities without customer interface (e.g., services to group entities)
International Trade Financing Services Platform
Facilitators of permissible activities as approved by the Authority
Other non-core activities include merchant banking, investment advisory services, portfolio management, and asset management support services, among others.
Prudential Regulatory Requirements
Capital Ratio: Minimum of 8% of regulatory capital to risk-weighted assets.
Liquidity Coverage Ratio (LCR): To be maintained as determined by the Authority, with possible allowances for parent entity maintenance for Finance Units.
Exposure Ceiling: Exposure to a single counterparty or group of connected counterparties capped at 25% of eligible capital base without Authority approval.
Net Worth Requirements
Non-Core Activities only: $0.2 Million
Core Activities: $3 Million
Specialized Activities: $5 Million
Global/Regional Corporate Treasury Centres: Higher of $0.2 million or specified amount
Fee Structure
Registered FME (Non-retail):Application Fee: $1000Registration Fee: $12500Recurring Annual Fee: $12500 (Air/Ship Operating Lessors: $5000)
Tax Benefits
100% Tax Exemption: On business profits for 10 years out of the first 15 years.
Minimum Alternate Tax (MAT): Reduced to 9% for IFSC units.
Additional Resources
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Disclaimer: This post is for informational purposes only and does not constitute professional advice. While efforts are made to ensure accuracy, we do not guarantee the completeness or reliability of the information provided. Any reliance is at your own risk. Consult professionals for specific advice.
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