The Reserve Bank of India (RBI) has removed restrictions on individuals opening interest-earning Foreign Currency Accounts (FCA) in India’s International Financial Services Centre (IFSC). This move is part of the RBI’s efforts to make the IFSC more attractive.
The central bank has also removed the requirement to repatriate funds lying idle in the FCA account for up to 15 days. This long-awaited amendment by the RBI has put IFSC at par with other jurisdictions when it comes to remittances. In February 2021, the RBI allowed resident individuals to make remittances under the Liberalised Remittance Scheme (LRS) to IFSCs set up in India, but the remittances were only allowed for making investments in IFSC securities.
Previously, only non-interest-bearing FCAs were allowed in IFSCs under LRS, and any funds lying idle in the account for up to 15 days from the date of its receipt were immediately transferred back to the domestic account of the investor in India. The RBI circular issued on Wednesday removes these key restrictions.
Legal experts believe that this move will boost activity at Gift City, India’s first and only IFSC. “Now interest-bearing accounts may be possible. One may be able to park money in IFSC and will be able to earn some interest on that amount. Because of the earlier restrictions, people were not remitting money to GIFT City. There are a lot of charges involved,” said a market expert requesting anonymity.
Under the LRS, authorized dealers were allowed to facilitate remittances by resident individuals up to $250,000 per financial year for any transactions permitted under the law. The latest move by the Reserve Bank of India will also help banks at IFSC mobilize liabilities. It will give them cheaper access to funds and, in turn, allow them to lend at more competitive rates, said an expert.
This decision is expected to bring significant benefits to the IFSC ecosystem. By allowing individuals to open interest-earning FCAs, it will increase the inflow of foreign currency into the IFSC. The removal of the repatriation requirement will enable individuals to hold their foreign currency for longer periods and earn interest on it, providing them with a better return on their investment.
Moreover, it will enhance the competitiveness of the IFSC as an international financial center, making it more attractive for global investors. It will also help in creating a more level playing field between the IFSC and other international financial centers, making it easier for companies to conduct business in the IFSC.
In conclusion, the RBI’s move to remove restrictions on individuals opening interest-earning FCAs in IFSC is a significant step towards making the IFSC more attractive for investors. It will allow individuals to hold their foreign currency for longer periods and earn interest on it, providing them with a better return on their investment. The move will also help in creating a more level playing field between the IFSC and other international financial centers, making it easier for companies to conduct business in the IFSC. Overall, this is a positive development for the IFSC ecosystem and is expected to boost its growth in the coming years.
