Restrictions Eased for Companies in International Financial Service Centers in India
By India Briefing
Posted: 2nd February 2017 08:41
In a move that will boost foreign investment and business in the Indian economy, the Modi government recently unveiled various incentives for private companies that want to set up in international financial service centers (IFSC) in the country. These include granting such firms exemptions from several norms in the Companies Act, 2013. IFSCs serve customers outside the domestic economy and handle cross-border financial products and services. They can be set up in special economic zones (SEZs) to avail benefits and inducements that are applied to such zones.
On January 4, the Ministry of Corporate Affairs (MCA) allowed 39 modifications/exemptions for private companies in IFSCs from several clauses in the Companies Act of 2013. Highlights of the exemptions are:
- Private companies can make placement offers and will not be restricted by previous offers that haven’t been completed or withdrawn.
- An extract from the annual return of the company will not have to be included in the board’s report.
- Companies will not be required to comply with the secretarial standard as per the Institute of Company Secretaries of India.
- Such firms can make investments through more than two investment companies.
IFSCs have to be licensed under only one of the three central regulatory bodies, which are – India’s Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), and the Insurance Regulatory Authority of India (IRDA). In addition, some rules that have been relaxed for IFSCs are:
- IFSC companies are only limited by shares.
- Such companies have to add International Financial Service Centers or IFSC in their names.
- Relaxed time for filing documents – the time given for submitting verification for registered addresses to the Registrar of Companies (ROC) for IFSC companies is sixty days rather than 30; the filing of resolution and agreement with ROC can be done in sixty days.
- An officer or any other person authorized by the company can authenticate documents and other contracts for IFSC companies. Under the Companies Act, only an officer of the company can do so for other companies.
All transactions in the Gujarat IFSC are required to be carried out in foreign currency; however, administrative and statutory expenses can be done in Indian rupees. Banking, insurance, and capital market sectors can be set up in the IFSC. Domestic and international banks that have branches in India can set up International Banking Units (IBU) in the IFSC and will be exempt from Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements. They must have a minimum capital of US$20 million.
The government is keen to make IFSCs succeed and some norms may be overlooked as more IFSCs are planned in the country. The RBI has also suggested a unified regulator for IFSCs, particularly to deal with dispute resolution and other issues. Nevertheless, the easing of restrictions at IFSCs will help companies do business and set up in such IFSCs without major hitches. The reforms are also expected to incentivize global companies to enter. Lastly, the government can use such IFSCs as a sandbox to pass reforms before rolling them out to the rest of the country.
This article was first published on India Briefing
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