Page 37 - Banking Finance May 2025

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within IFSCs. They specify the types of banks that can resolution forums may also be specified, ensuring
operate within IFSCs, including full-fledged banks, avenues for redressal beyond the bank's internal
branches of foreign banks, and wholly-owned processes.
subsidiaries of foreign banks.
2. Capital Adequacy Norms: The regulations prescribe Implications for the Future of Banking
minimum capital adequacy ratios that banks must The IFSCA (Banking) Regulations, 2020, introduced by the
maintain to ensure financial stability and mitigate risks. International Financial Services Centres Authority (IFSCA),
Banks are required to adhere to a risk-based capital are expected to have significant implications for the future
framework to align capital requirements with the level of banking in India and globally. These regulations aim to
of risk they undertake. create a conducive environment for international financial

3. Prudential Norms: Guidelines are provided for the institutions within India's International Financial Services
classification of assets and provisioning requirements Centres (IFSCs), primarily focusing on GIFT City in Gujarat.
to address credit risks effectively. Banks operating Some key implications for the future of banking:
within IFSCs must maintain liquidity ratios to ensure Enhanced Global Competitiveness: The regulations
they can meet their financial obligations in a timely are designed to position Indian IFSCs, particularly GIFT
manner. City, as competitive global financial hubs akin to
international counterparts like Singapore and Hong
4. Corporate Governance and Risk Management: Kong. This positioning is expected to attract global
Regulations stipulate governance standards, including banks and financial institutions to establish operations
board composition, to ensure effective oversight and
in India, thereby enhancing competition and promoting
management of risks. Banks are required to establish
innovation in the banking sector.
robust risk management frameworks covering credit
risk, market risk, operational risk, and compliance risk. Boost to Financial Inclusion and Access: By attracting
global financial institutions, the IFSCA regulations can
5. Operational Guidelines: Requirements are laid down potentially broaden access to advanced financial
for the establishment of operational infrastructure, products and services in India. This influx of
including systems and controls, to support banking international players may lead to increased
operations within IFSCs. Guidelines ensure adequate competition, driving improvements in service offerings,
consumer protection measures are in place, promoting pricing, and accessibility for domestic customers.
fair practices and transparency in banking operations.
Technological Advancements and Innovation: The
6. Regulatory Reporting and Compliance: Banks must
regulations encourage the adoption of innovative
adhere to periodic reporting requirements to IFSCA, technologies such as fintech solutions, digital banking
detailing their financial health, risk exposures, and platforms, and regulatory sandboxes within IFSCs. This
compliance with regulatory norms. Regulations emphasis on technological advancements is expected
mandate regular compliance audits to ensure to transform banking operations, enhancing efficiency,
adherence to regulatory guidelines and standards.
security, and customer experience.
7. Technology and Innovation: The regulations Job Creation and Economic Growth: Establishing IFSCs
encourage the adoption of innovative technologies and
as vibrant financial centres can stimulate economic
digital banking solutions within IFSCs to enhance growth by attracting investments, creating job
operational efficiency and customer experience. opportunities, and fostering a conducive ecosystem for
Provisions may exist for regulatory sandboxes to test ancillary services such as legal, consulting, and IT
new financial products or services in a controlled services. This growth can have cascading benefits for
environment, fostering innovation while managing the broader economy.
risks.
Regulatory Standardization and Compliance:
8. Dispute Resolution Mechanisms: Guidelines may
Standardizing regulatory frameworks across IFSCs helps
outline internal dispute resolution mechanisms within align Indian banking practices with international
banks to address customer grievances promptly and standards and best practices. This harmonization is
fairly. Provisions for access to external dispute

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