A series of developments over the past one week has set new milestones for the International Financial Services Centre (IFSC) at GIFT City Gandhinagar.
On April 17, Singapore Exchange announced a complete transition of SGX-Nifty derivatives contracts to NSE-SGX Connect at GIFT-IFSC from July 3. This was followed by shipping player RBB Ship Chartering’s GIFT-IFSC unit formally announcing the commencement of its commercial operations.
A day later on April 19, public sector lender Bank of Baroda said it looks to make its IFSC Banking Unit (IBU) as its “wholesale banking hub”.
The enabler & regulator
Appearing to be independent in their own domains, these developments have their roots connected to April 27, 2020, when the Centre formed a unified regulator International Financial Services Centres Authority (IFSCA) under the International Financial Services Centres Authority Act, 2019. The IFSCA was entrusted with the responsibility for the development and regulation of financial products, financial services, and financial institutions in the IFSC at GIFT City.
From October 1, 2020, IFSCA was accorded the powers of India’s four domestic sectoral regulators — RBI, SEBI, IRDAI and PFRDA.
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Legal expert Ketaki Mehta, Partner-GIFT City at Cyril Amarchand Mangaldas, considers this as a big move.
“With IFSCA in place, the entities no longer need to run to other regulators. They are now providing single window clearance to simplify the process and create a platform to make it faster. It shows the commitment towards ease of doing business,” Mehta said.
Speaking to businessline, V Balasubramaniam, MD & CEO, NSE IFSC, said: “ It enables the creation of market, even while regulating it. This is an important balanced role IFSCA plays. Globally, it is seen as a regulatory sandbox. This is the 21st-century model.”
With IFSCA regulatory support, 23 banks — Indian and global majors such as Citi Bank (US), JP Morgan (US), Standard Chartered, HSBC & Barclays — have obtained licences to operate IBUs. The total banking asset size has grown to $36 billion with cumulative banking transactions crossing $407 billion as of March 2023. The derivatives transactions, including USD-INR Non-Deliverable Forwards have crossed $534 billion.
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India-centric fund management activities are also rapidly evolving. So far, 63 Fund Management Entities (FMEs) are registered and 50 funds are operational with capital commitment to the tune of $12.5 billion. These FMEs manage fund looking to invest in the listed securities globally including in India.
Inching closer to top
For Bank of Baroda, its GIFT IBU has become fourth largest international business unit after New York, Dubai and London. The Bank’s managing director and chief executive officer, Sanjiv Chadha exudes confidence to make it one of the two major wholesale business centres along with New York.
NSE IFSC’s Balasubramaniam believes that IFSCA has played a pivotal role in getting things off to a rousing start as the much-awaited SGX-NIFTY derivatives contracts are set to relocate from off-shore i.e. Singapore to onshore at GIFT-IFSC. This is believed to give a significant boost to trading volumes on GIFT-IFSC. “Without this unified regulator, the NSE SGX-Connect arrangement would not have been possible,” he said.
Next on radar
TheBudget of 2023-24 proposed to amend the IFSCA Act for statutory provisions for Arbitration, Ancillary Services and avoiding dual regulations under the SEZ Act.
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A contemporary and robust dispute resolution centre is the need of the hour. Commenting on the same, Mehta from CAM, said, “A separate courts system would be helpful for IFSCA. Presently, any dispute would go to normal courts, unless it was contractually agreed to the other courts. Emergence of an arbitration facility will also be a great source of business as foreign law firms look at IFSC as an entry to Indian market.”
Echoing similar sentiment, Balasubramaniam commented that an independent arbitration mechanism would be important to attract international players. “If there is a litigation, then, a dedicated judicial bench or a court for the IFSC matters will be very important. It would immediately resolve the issues. That is going to be critical going forward,” he said.